By Melanie Lockert, Content Writer at Credit Karma
Managing your money and staying in good financial standing can seem tricky, especially when so much is out of your control. College tuition is often costly, wages are stagnant, taxes and cost of living can be high, and all of these factors can affect your bottom line.
But there are also ways you may be tricking yourself out of financial security. Find out five ways you could be sabotaging your finances.
1. Treating sales as excuses to spend.
Sales can be great ways to save money, but they can also trick you into spending more money than you had originally budgeted for. In order to maximize your savings, sales should primarily be taken advantage of for things that you need or were already planning to purchase.
If you find yourself overly drawn to sales pitches, consider signing up for something like Unroll.me to unsubscribe from promotional emails that may be encouraging you to spend more than you budgeted for.
2. Not saving for emergencies.
You may think an emergency fund is unnecessary or low-priority, especially if you're working your way out of debt or have a line of credit that you can utilize. However, not having a backup plan or simply relying on a credit card in case of an emergency can quickly lead to debt. An unexpected expense can get even more expensive if you put it on a credit card and aren't able to pay it off in full by the due date.
One unexpected event can lead to months or years of debt repayment, effectively sabotaging your financial progress for years to come. For starters, strive to save at least $1,000 in an emergency fund and then work your way up to three to six months' worth of expenses.
Peter J. Creedon, Certified Financial Planner™ at Crystal Brook Advisors, says, "Life is full of unexpected and expensive events, from health care deductibles and copays to unanticipated repairs to your car or home. Be prepared with at least three to six months' of expenses in a liquid (money market or saving) account."
3. Not investing because you don't understand it.
Stocks, bonds, ETFs, IRAs: What does it all mean? You may find yourself scratching your head when it comes to investing, as it can be full of jargon and various acronyms, making it difficult to understand or get a clear picture of how it works.
However, you may be sabotaging your finances if you're not investing just because you don't understand it. I've been totally guilty on this one, using this excuse as one of the many reasons why I didn't start investing.
Now I see that investing can be a way to build wealth and beat the cost of inflation. In order to better understand investing, I've started to do my own research and chat with friends. If you aren't clear on how investing works, do your own research and get familiar with the terminology before you get started.
4. Ignoring the important financial numbers.
It's easy to get caught up in the hustle and bustle of life and ignore some of the details related to your financial life. But burying your head in the sand when it comes to these important numbers could be doing you more harm than good.
Do you know your credit score? Or how much debt you have? What are the interest rates on your debt? How much do you take home each month after taxes? All of these are important numbers that you should have a firm grasp on.
If you're unclear about where you stand, check out your credit score on Credit Karma. Look at your pay stubs and see how much you're actually taking home each month, and carefully go over your credit card and student loan statements to verify balances and interest rates. In addition, look for any sneaky fees that you may be unaware of.
5. Only paying the minimum on your credit cards.
You may think you need to carry a balance in order to improve your credit, but that's actually a myth. "Carrying balances is a dangerous path to walk on," says Creedon. "Debt is easy to build up to a level that jeopardizes other goals."
Carrying a balance and only paying the minimum on your cards can quickly sabotage your finances. Over time, you could pay much more in interest, and it could take you years to get out of debt. If, for example, you have a balance of $3,000 with a 15 percent interest rate and make minimum payments of $120, it'd take around 31 months to pay off your debt and you'd pay around $620 in interest.
Creedon explains, "Credit card companies make their money on the high interest rates and fees that they charge."
In addition, carrying a balance could negatively impact your credit score if your balance -- and in turn, your credit utilization rate -- gets too high.
If any of these scenarios sound familiar, you may be sabotaging your finances without realizing it. In order to get your finances on track, create a plan to budget, save, pay off debt and invest.
"Using credit wisely, following/committing to a budget, and (using) just some plain common-sense approaches to spending are important to building a sound financial foundation," says Creedon.
That strong foundation can help you thrive during the tough times and enjoy the good times without worry.
About the author: Melanie Lockert is a freelance writer and editor currently living in Portland, Oregon. She is passionate about education, financial literacy and empowering people to take control of their finances. Her work has been featured on Rockstar Finance, GoGirl Finance, The Globe and Mail and more.
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