It's easy to make financial mistakes. "We're emotional beings. We're not algorithms," Jill Schlesinger, a certified financial planner and a CBS News Business Analyst recently told Grow. "Even when we have the best information, our instincts and emotions lead us astray."
Some people make mistakes because they were trying to cut corners. Others do because they didn't know enough about the financial choices they were making. Last year, Americans estimated they lost an average of $1,279 each from gaps in their money knowledge, according to data from the National Financial Educators Council, for example.
Luckily, you don't have to be a finance whiz to handle your money well.
The most helpful thing to know about money is that you'll get ahead if you spend less of it than you make, and that it's smart to try to save as much as possible both for a rainy day and for the future. Applying that knowledge in a few strategic ways can be both pretty easy and very beneficial to your bottom line.
Perhaps the most common mistake people make with their money is that they don't have any sort of plan. They don't know how or where they're spending their money. They may not even know how much they're earning, either. And without some sort of financial blueprint, they're failing to plan and save for the future.
"The biggest financial mistake is not budgeting or having a financial plan at all," says Justin Halverson, a Minnesota-based financial advisor.
When you don't have a way to guide your financial choices, your emotions and impulses will often step in and take over. And if you're putting off saving for retirement, you're savings miss the opportunity to compound and generate more wealth. By forgoing those savings now, you'll likely need to contribute more in the future to catch up.
The solution is to create a basic financial plan. You can start with a simple budget, which can put you on the right track.
Video by Ian Wolsten
Whether it's rent, phone bills, or a car payment, a lot of people are paying more than they need to for their everyday expenses. Ask yourself whether there's any way to lower your housing costs. Could you live in a smaller space? A less expensive neighborhood? Even a more affordable city? If you own, you could consider whether refinancing your mortgage makes sense.
If you're looking to buy a car, go for preowned rather than new, and remember that negotiating could potentially save you thousands not only on the sticker price but in insurance costs, too.
Making an impulse buy here and there seems pretty harmless. It can be the result of having a bad day, or even just low blood sugar. But the repercussions add up: These types of purchases can cost the typical consumer as much as $5,400 a year, according to Slickdeals.
The good news is, you can avoid and minimize emotional purchases. Try only using cash for a period of time, for example, or setting up autopay to make sure your bills get paid right away and that you're hitting your savings goals.
Having no budget and spending your money on a whim will cause you to overspend. That means that you're either overdrawing what you have in your bank account, or using credit cards to do it — so, going into debt, or racking up fees from your bank when your account dips into the red.
Video by Jason Armesto
Consider this: The average overdraft fee is a little more than $33. So, if you were to spend $3 on a snack and overdraw your account, a $33 overdraft fee quickly turns your $3 bag of Combos into a $36 bag of Combos. It'll add up, too. Last year, CNBC Make It reported that overdraft fees alone brought in $34.5 billion in revenue for financial companies during 2018, according to data from financial research company Moebs Services.
To avoid overdraft fees, you can set up overdraft protection or shop around for a fee-free checking account. It's a small move that can save you a lot of money. "Overdraft fees are going to be the death of you," says Halverson. "Not only do you not have any money, but now all that money that you didn't have is going to hurt you, too."
You can also look to cancel subscriptions that you don't use to free up money in your budget, or at least try requesting a discount. Last year, a Grow reporter managed to save more than $660 per year on a cable subscription simply by calling up her provider and asking for a better rate.
High-interest debt, like credit card debt, can put a monstrous burden on your monthly budget, further straining your ability to save money. That debt can compound, too, putting you even deeper in the hole.
If you prioritize paying off debt by putting just an extra $25 a week towards your loans, though, you could be debt-free years ahead of schedule and save thousands of dollars.
Perhaps the repeatable financial offense with the most impactful effects that many people make is that they're not saving and investing for the future. Many people struggle with this aspect of their finances because it's hard to picture ourselves in the future — but your future self is the one who's going to benefit from the financial groundwork you lay now.
"A future version of yourself comes across as a stranger," says Sri Reddy, senior vice president in retirement and income solutions at Principal. But Reddy says that doing that future stranger the favor of making wise financial decisions now is the best thing you can do.
For example, if you started with an initial investment of $1,000 and contributed $100 per month with an average annual return of 6%, you'd end up with almost $107,000 to help you get by after you retire.
You can start by building your savings and opening up investment or retirement accounts with automatic contributions. Put that money away, and let it grow — that's the key to building wealth, experts say. Starting as soon as you can is important, too, because time is the one thing you can't get back.
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