Top 10 Money Management Mistakes



Paying Yourself Last

 

You might be tempted to wait until the end of the month, after all your expenses are paid, before you put any money into savings. If you do, don't be surprised to discover there is nothing left to put in the bank. "Pay yourself first, either through payroll deduction into your company retirement plan, or by an automatic draft from your checking account into your savings account," says certified public accountant Mark Noel. "If you don't see it, you're less likely to spend it."

 

You might be tempted to wait until the end of the month, after all your expenses are paid, before you put any money into savings. If you do, don't be surprised to discover there is nothing left to put in the bank. "Pay yourself first, either through payroll deduction into your company retirement plan, or by an automatic draft from your checking account into your savings account," says certified public accountant Mark Noel. "If you don't see it, you're less likely to spend it."

 

Carrying High Interest Debt

If you have money in a passbook savings account earning less than 1 percent interest, but you're carrying an equal amount in credit card debt at 19 percent interest, you're losing 18 percent per year. Cut your interest expenses by using your savings to pay off that high interest loan. Then use the money you were paying on your credit card to rebuild your savings.

Overpaying for Property Insurance

Property insurance, such as your homeowners and auto insurance policies, are designed to protect your assets if you experience a loss – for example, if you cause a car wreck or your house is damaged in a fire. A properly designed policy typically includes a deductible, which is the amount you can afford to pay toward that expense. If you have $10,000 in the bank that is set aside for emergencies, but you're carrying a $500 deductible on your homeowners' insurance, chances are your premiums are too high. You can pocket some extra money by raising your deductibles.

Not Having a Budget

"One of the biggest mistakes people make is not having a budget," Noel says. "A budget is a road map to financial freedom. If you don't have one you are shooting from the hip, as far as your paycheck goes, and you'll eventually shoot yourself in the foot." A personal budget doesn't mean you can't have fun. It's just a means of determining, in advance, where your money should go, so you can make an informed decision about how you spend, save and invest.

Buying a New Car

You might have heard that a new car depreciates as soon as you drive it off the lot. It's true. According to the Edmunds auto website, the average new car loses 9 percent of its value the minute after you sign on the dotted line. After one year, it's only worth 81 percent of its original purchase price. You can save some big bucks by purchasing a gently used vehicle instead of buying new.

Impulse Buying

We have all had that moment where you just can't resist that must-have item. You see those new shoes or that shiny new miter saw, and they're on sale now, and you just have to have them. Except that you didn't need them before you walked into the store. Before you buy an item that's not on your shopping list, take a hour to cool off. If you still think it's a sound buy, and you have extra wiggle room in your budget, go for it. If not, walk on past and save yourself some money.

Not Preparing for Non-Monthly Expenses

You know what day the mortgage or rent payment is due. The electric bill rolls around the same time every month. You're probably pretty good at getting the monthly bills taken care of, but if you don't plan for those non-monthly expenses, your budget can suffer. Anniversaries, birthdays, vacations, Christmas and bi-annual visits to the dentist can sneak up on you if you don't prepare in advance. Noel recommends sitting down with your spouse and other family members and getting their input. "It's important to have another set of eyes to look over your budget so you don't forget an upcoming expense," he says. Personal finance software can also send you automatic reminders in advance, so you can be better prepared for non-monthly expenses.

Assuming Your Retirement Will Take Care of Itself

Depending on which personal financial adviser you ask, you'll need between between 60 and 80 percent of your pre-retirement income to maintain your lifestyle after you retire. The sooner you start investing toward your retirement, the better chance you have of reaching your retirement goals.

Getting a Big Tax Refund

Everyone loves a tax refund check, but you'd like it even more if it were bigger. "A tax refund is nothing more than the amount you overpaid to Uncle Sam during the year," Noel says. "When your employer withholds too much from your paycheck, you are actually making an interest-free loan to the government." If you adjust your withholding to be more in line with what you actually owe, then put that difference into your savings account, you'll have more money in the bank than you'd get from the tax refund check.

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