16 January 2018

20 Money Mistakes Everyone Makes

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Although Americans are known, adorably, throughout the world as a culture of loud mouths, we are very secretive about money. Our communal tightlippedness about financial problems keeps everyone in the dark. Because we are not able to learn from others’ mistakes, we blindly walk into impending financial disasters, without a word of warning. Here is a list of some of those terrible money mistakes.

1. Counting on Social Security. The Social Security trust fund is scheduled to run out in 2037. People need to plan their retirement accordingly, in order to make up for this loss. 

2. Going Poor From a College Education. Unfortunately, ballooning costs of education have made college a financial risk for many Millennials. For many people who grow up poor, a college education actually increases their poverty. 

3. Being Ignorant About Home Loans. People are often confused about what is required to get a home loan. For example, 36% of Americans mistakenly believe that a 20% down payment is always required. One of the big questions any home buyer should ask is “Does this make financial sense?” In certain situations, you may want to weigh buying vs. renting. 

4. Overspending on Housing. Conventional financial wisdom states that housing should not make up more that 25% of your paycheck. To cut costs, consider renting out your home as an Airbnb, or adding a roommate. Not every home must be a castle. 

5. Not Understanding the Scope of Your Debt. Researchers discovered that people estimated their credit card debt to be 40% less than what the lenders reported. Families underestimated student loan debt by 25%. The gap was worse in households with more than one adult. Researchers posit that people may be good at estimating their own debt, but terrible at estimating the debt of others. 

6. Being Financially Unfaithful to Your Spouse. About 43% of married couples cannot correctly state their partner’s salary. What’s even more bonkers is that one in three adults in a combined financial relationship admits to financially deceiving their partner. 

7. Forgetting About the Children. Parents in every tax bracket have a hard time talking about money with their children. Keeping kids financially illiterate can have lifelong repercussions, none of them good. 

8. Forgetting to Budget. A Gallup poll reveals that only 32% of Americans prepare a detailed household budget every month. This means the other 68% are just winging it. Without an accurate picture of where and how money is spent, it is impossible to make solid financial decisions. 

9. Not Saving an Emergency Fund. Having an emergency fund is the foundation of financial well-being. Because according to the Federal Reserve, 47% of Americans do not have the ability to cover an unexpected expense of just $400 without selling something. It’s virtually impossible to stay out of debt if every little emergency forces you to borrow money. 

10. Financing Major Purchases by Debt. It makes a lot more sense to put away money each month for a major purchase, even if it’s in a savings account with a crappy interest rate, versus paying interest to a credit card company. 

11. Buying New. Everyone knows that cars lose value the second they are driven off the lot. Most people never think about how virtually the same concept is true for almost every other new purchase. In fact, buying used goods is one of the ways to save over $30,000 in less than eight years. 

12. Relying on One Source of Income. Salaried workers with benefits can increase their financial stability by taking outside work. In shaky economic times, it literally pays not to put all your financial eggs in one basket. 

13. Underestimating Tax Bills. Make it a point, as soon as possible, to review your tax returns from previous years to get a clearer picture of what you will actually owe in taxes this year. If your income varies widely from year to year, get in the habit of putting at least 10% of every paycheck in a savings account to offset your taxes. 

14. Failing to Negotiate Prices. Haggling is not just for garage sale shoppers. Big-box and department stores will usually match competitors’ prices, so it pays to do price comparisons before buying big-ticket items. Also, cash is king. Many retailers are willing to adjust prices if you can pay cash. It never hurts to ask.  

15. Overspending on Gifts. According to the American Research Group, Americans spent, on average, $861 for holiday gifts last year. There are numerous ways to hack holiday debt, including making your own gifts. 

16. Screwing Up Your Perks. Credit card rewards are just one perk that people fail to use. Over the course of the year, people lose thousands of dollars in merchandise and services by just not using them. This is known as breakage or spillage in financial parlance. 

17. Falling Victim to Rewards Credit Cards. Rewards cards can have a cost. Additionally, even the most responsible bill-payers can fall victim to purchase acceleration. People tend to spend more the closer they get to the reward, often buying things they wouldn’t necessarily have bought with cash. 

18. Not Continuing Your Education. Learning new things is vital to continued employment. Many workers accidentally age themselves out of their preferred jobs by not refreshing their skill set to stay competitive with younger workers. Learning new skills can also lead to promotions, greater negotiating power, and the ability to change careers. 

19. Missing Out on Food Stamps, Unemployment, and Other Benefits. Not exploring food stamps and other benefits when you are struggling is really dumb. The USDA issued a 2012 report stating that lack of information about eligibility is one of the primary reasons qualifying Americans don’t consider signing up for food benefits. Shockingly, less than half of all eligible nonparticipants are even aware that they qualify. 

20. Not Seeking Out a Financial Mentor. An accountant and bookkeeper help people stick to their financial goals and develop the best practices for managing my money year round. Even the most money-savvy people can benefit from an outside opinion. 

Click here to access the full article on CNN Money.

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