Handling money can be difficult, particularly if you learned poor financial habits from your parents. You might be unable to pay your bills, save money, or set a budget. If you frequently have money problems, you must figure out where you’re going wrong. Here are some common mistakes many people make with their money.
1. Spending too much money on your home
Whether you rent or own, you shouldn’t spend too much on your housing. Just how much is too much? Many people agree roughly 30% of your income can be spent on housing. But that number isn’t right for everyone.
To truly understand how much you can afford, you need to determine whether you can pay for your home and still afford basic necessities. You also need to consider that you might have to pay for location in addition to just shelter. Plus, you must take into account how many other bills you have and whether your debt payments are significant. If you have few additional bills and no debt, you might be able to afford a higher monthly housing payment.
2. Perpetuating debt
Too much debt can be stifling, and it can have several consequences. For one, it might lower your credit score. And you might not have the funds to pay other bills. You also risk being unable to secure a loan. So if you can, it’s important to pay down your debt.
It’s equally important not to perpetuate the cycle. According to Pew Research Center, 8 in 10 Americans have debt. While some debt can help to build wealth early in your life, your financial insecurity can increase if you have too much debt as you age. And if you’re continually using credit to purchase items, it’s time to start paying off your credit card debt.
3. Working alone
If you’re in a committed relationship, you should be working with your partner to make smart financial decisions. It’s easy to get into a rhythm of making your own decisions, paying your own bills, and working on your own financial goals. But once you get married or move in with someone you should be discussing your finances together.
It’s necessary to set mutual goals if you plan to live together. Otherwise you risk financial disagreements. There are several money-saving strategies that could help to improve your finances as a couple.
Even if you’re not in a relationship, it might be a good idea to get help from a financial adviser or even a trusted friend who is good with money. Sometimes having someone else hold you accountable is a great way to get on track.
4. Neglecting the future
An emergency fund is an absolute necessity. If you don’t have money saved in case of an emergency, you need to make that a priority in your budget. You never know when an accident, illness, or job loss will force you to rely on savings. You also should be regularly saving for big ticket items you can’t pay for out of pocket, such as home repairs or a new car. All of these expenses are not a matter of if but when, so being prepared is critical.
5. Not saving for retirement
If you’re in your 20s or 30s you might think you don’t need to start saving for retirement yet. But it’s important to think about the future, no matter how old you are. There’s no way to know what Social Security will be like when you retire, and you need to save and invest in order to have the money you need to be comfortable in retirement. MSN has a helpful retirement calculator that can get you started.
6. Emotional spending
Have you ever had a really tough week and thought you deserved a pricey treat for getting through it? Lots of things can trigger emotional spending. Stress, anxiety, or even a good mood can cause you to open your wallet. Or you might feel pressured to keep up with your friends’ extravagant purchases.
Whatever your trigger is it’s best to pump the brakes on this type of spending. Even if it’s just a few dollars on a pastry to cheer you up, most emotional purchases are unplanned — and therefore not in your budget. Try setting aside a certain amount each month for frivolous spending to cover these purchases, and stop yourself from going over that allotted amount.
7. Being unaware of your credit score
When was the last time you checked your credit score? If it’s been more than a year it’s time to request a credit report. According to Experian, an annual review allows you to keep on top of your financial picture, so you’re not surprised when you want to apply for new credit.
Also, a quick check can alert you to identity theft or inaccurate information, which could create a whole host of issues for you unless you catch them early. Finally, your annual report is free, and you should “never pass up a freebie, especially when it can affects your financial health and well-being,” according to Experian.
8. Not setting a budget
It’s hard even to notice you’re making any of these common money mistakes if you don’t have a budget. So it’s critical to keep track of your spending, especially if finances are tight. An ideal budget should have room for savings, retirement contributions, and impulse purchases, as well as your basic monthly expenses. If you don’t already have a budget in place start by tracking your spending. You might realize you need to realign some priorities to avoid making mistakes with your finances.
Additional reporting by Sienna Beard.