8 Common Money Mistakes You May Be Making — and How to Fix Them
You consider yourself pretty good with money. You try to stick to a budget, don’t splurge too often on things you can’t afford, and pay your bills on time. However, even the most financially responsible people may be making mistakes with their money without realizing it.
From budget oversights to not taking advantage of savings tools, these are common money mistakes you may be making — and expert tips on how to fix them and get back on track to financial success.
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The mistake: You’re ignoring your interest rates.
The fix: Take a few minutes to review them and potentially refinance student loans at a lower rate.
If you’re one of millions of Americans with student loan debt, you may want to pay closer attention to your interest rates. “Refinancing student loans down even a percentage point can save hundreds of dollars per month, which frees up money for other personal goals, like saving for a home,” says Steve Muszynski, CEO and founder of Splash Financial. “Interest rates remain at all-time lows, but the government has forecast fairly significant rate increases later this year and into 2023 — making now an ideal time to refinance.”
Muszynski recommends taking just 10 minutes to review your rates and see if you can refinance at a lower rate. (Here’s a great guide to get you started.) “When people consider student loan refinancing, they often think of the hassle and cost of home refinancing. However, refinancing student loans doesn’t cost a dime, it can save you thousands of dollars, and you can refinance as many times as you’d like,” he says.
The mistake: You’re not using automatic savings tools.
The fix: Get started via your bank or with an app.
Does your bank offer automatic savings tools that monitor your spending and take small amounts to add to savings on the regular? If you’re not opting in, it may be time to start. “Taking advantage of these programs can help reduce the stress of remembering to regularly put money aside and will ensure you’re consistent about making saving a priority,” says Erin McCullen, head of deposit products at Bank of America. Some may round up purchases and deposit the change into your savings, while others may transfer small amounts from checking to savings without you doing any work at all. “Start small by automatically transferring a few dollars each week,” McCullen says. “Consistency, no matter how small a deposit, is key to building your savings.”
You could also consider downloading savings apps — like Digit or Acorns — that can help you not only save but also invest.
The mistake: You’re holding off saving or investing because it’s not “the right time.”
The fix: Start small — every little bit counts!
“If you have $5 to spend on coffee every day, you could start by saving $5 a week too,” says Claudia Valladares, financial advisor at Kovar Wealth Management. “It may not seem like much, but it will add up and it at least gets you started.” You don’t need thousands of dollars to start investing, nor do you need to transfer hundreds of dollars to your savings account all at once. Valladares says the most important thing is just to start, whether it’s with $5 or $500, and watch that number accumulate over time.
The mistake: You’re not using credit cards.
The fix: Use credit cards responsibly.
Credit cards can be a slippery slope to spending cash you don’t have, but they’re useful tools in building your credit — and that hard work can pay off when you’re applying for a car or mortgage loan. If you’ve sworn off using a card entirely, you may want to reconsider and sign up for one. Your credit score is calculated by a few factors, including payment history, debt-to-credit ratios, and history of credit — all things potential lenders pay attention to — and using a credit card responsibly is the perfect way to start building credit. “Using credit cards and paying them off on time indicates your affordability and creditworthiness to potential creditors,” says Lyle Solomon, principal attorney at Oak View Law Group.
The mistake: You have too many credit cards.
The fix: Spend across just a few cards.
While you should be using a credit card to build credit (and help you out in a pinch), that doesn’t mean you should apply for every single card you see — and that includes store-specific cards. “While it can be tempting to open store cards from your favorite retailers or join multiple rewards programs, keep in mind that having too many cards open can hinder your credit score and indicate that you are a higher risk as a borrower,” says Valerie Moses at Addition Financial. “When considering a new card, be mindful of the pros and cons and whether the card will truly benefit you.”
If you often shop at a certain department store and will utilize its rewards without overspending, it could be a good fit, but if you’re signing up to get a one-time-only discount, step away and give it some thought before signing on the dotted line.
The mistake: You’re not paying attention to where your money goes.
The fix: Keep a closer eye on your purchase history.
You don’t have to examine every item on your bank statement or justify every penny you spend, but it’s a good idea to sit down and go through your history to see where you’re actually spending.
“How much are you spending at restaurants? How much are you spending at retailers whose ethics or environmental principles don’t align to your own?” says Tanja Hester, author of “Wallet Activism: How to Use Every Dollar You Spend, Earn, and Save as a Force for Change.” “When we get honest with ourselves about how we’re using our money, it’s much easier to make changes like committing to save more money for future goals or resolving to buy less from unethical companies.” Maybe you’re overspending on Amazon impulse purchases or splurging more than you’d like on workout gear. If you don’t do a quick run-through of your spending regularly, you’ll never know — and you won’t be able to make necessary changes to your behaviors.
The mistake: You’re not saving for retirement.
The fix: Start investing in your future little by little.
If your employer doesn’t offer 401(k) retirement benefits or you’re a freelancer or small business owner, you may not have a retirement account set up. There’s no time like the present, and saving for retirement should be a financial priority.
“When it comes to retirement savings, the earlier you start, the better,” says Daphne Foreman, banking and personal finance analyst at Forbes Advisor. “By taking advantage of a longer timeline, your money has more room to grow.” Foreman acknowledges that paying off current debt and juggling monthly expenses can make saving difficult but recommends putting any amount of money you can in a specified account. “At a minimum, make sure you’re taking advantage of any employer-sponsored retirement plan — especially where there’s a company matching contribution on offer — as well as looking into personal retirement savings options like IRAs, both Roth and traditional,” she says.
The mistake: You’re living above your means.
The fix: Save before spending and “investing” your raise.
Your financial path is yours and yours only, but it’s easy to get stuck comparing yourself to the people you see on your Instagram feed or your friends with better-paying jobs. One of the biggest money mistakes experts point to is living above your means and buying things you can’t really afford, or increasing your spending when you get a raise or higher-paying job.
“The key is to live a little below your means and invest that money for a better future,” says Robert R. Johnson, a professor at Creighton University’s Heider College of Business. “People let their spending increase commensurate with their new salary. For instance, people move into a bigger apartment or buy a more expensive car or home to reward themselves for receiving the raise. What happens is they are unable to improve their financial condition because they spend everything they make.”
Johnson recommends “investing your raise,” or saving that amount and pretending like you didn’t get a raise at all. “Continue to live the same lifestyle you led before receiving a raise and invest the difference.” If you have investments, consider putting that money there, or stick it in a savings account for a rainy day or big future purchase.