It’s not easy managing everything that life throws our way. Between juggling careers, family obligations, friendships, school, and our social lives…who has time to tackle managing every little detail of their finances, too?
While we certainly believe everyone is capable of owning their financial health and prioritizing their financial futures, we also know how difficult this can be. Today, we’re breaking down some sneaky ways you might be inadvertently sabotaging your financial efforts. Why? Because you’re only human and we could all use a little help sometimes. Read on to see if you’re unknowingly finding yourself guilty of one or all of these sneaky traps!
1. Relying too heavily on credit cards
Despite what you may believe, credit cards are not intended to be used to fully support your lifestyle. If you are constantly feeling as though the payments you’re making are hardly making a dent in your credit card balance, then it may be time to revisit your credit card use. You might be relying too heavily on your credit card(s) if your debt utilization ratio is above 30%. For example, if your credit card limit is $10,000, carrying anything above a $3,000 balance on your card would exceed the 30% debt limit. If you are typically situated above that 30% threshold, you could be unknowingly hurting your credit score, even if you are making the minimum payments each month.
Credit cards are wonderful tools that allow you to earn rewards and demonstrate solid spending behavior, but they are not designed as lifelines for you to use to “get by” each month.
2. Incurring too many unnecessary fees
If you sort through your most recent credit card and bank statements, you’ll likely notice a few charges for select fees: late fees, cancellation charges, ATM charges, interest charges, and/or annual credit card fees. While these fees may seem rather small, they can certainly add up over time and are largely preventable. Planning ahead and setting reminders for bills and other payments are great ways to avoid those late fees. Paying in full each month (and not relying too heavily on that credit card) can help reduce the amount you pay each year in interest.
Another thing to check on? Your annual credit card fee. If you currently pay a yearly fee to use the type of credit card in your wallet, it may be time to reevaluate that card’s value. If you are truly utilizing every benefit and reward the card provides, the fee may be worth it. Otherwise, paying the fee for use each year may not be helping you out as much as you think and you could be better off using a different, fee-free card.
3. Forgetting to update your budget
Life changes often – this we know. Typically, these changes will have a financial impact on your lifestyle as well. If you have recently moved, changed jobs, gotten married, started a family, or made a significant purchase, you’ll want to update your budget accordingly. Not doing so can mean that you’ll invariably be chasing a target that is not only unrealistic, but outdated.
4. Living beyond your means
This one happens to the best of us, which is why taking time to check-in every few months and evaluating your spending habits is so important. Are you spending too much money on unnecessary expenses and underfunding your retirement or other savings plans? While the temptation to keep pace with the latest trends exhibited by your favorite influencers on Instagram is very, very real, keep in mind that time is on your side right now. You still have time to save for retirement and to let the magic of compound interest work for you. Reevaluate that budget and hold yourself accountable to your spending goals. Living beyond your means may provide you with a life you love in the moment, but future decades will require significantly more sacrifices if you don’t change those little behaviors.
5. Waiting too long to get started investing
Obviously we are not all lottery winners who have the luxury of staring at multiple zeroes in our bank accounts. That said, the relaxing retired life is also not a guarantee. In order to achieve financial freedom at the later end of your career and into retired life, you have to make plans now. Opening an investment account and working with a professional can potentially help you achieve that financial security you’re so badly dreaming about.
6. Not protecting yourself or your family
If you have little ones depending on you, you absolutely need life insurance. If you work in a field where a devastating injury would absolutely prevent your ability to continue working, you’ll want to consider disability insurance. Insurance doesn’t have to be overly expensive if you work with a professional and evaluate all of your options. Unfortunate events do happen. Make sure you’re preparing yourself and your family accordingly.
7. Not saving enough money
We get it. It’s not always easy to stash away cash, especially when you have loans, a mortgage, are busy building your business, or have other financial responsibilities. However, saving money earlier on is one of the most critical components of securing a financially stable future. If you are just getting started, you will want to focus on your financial security by establishing an emergency fund and by contributing to your 401(k) or other employer-sponsored retirement plan. If you have been working on your financial goals for some time, it may be time to check-in:
Have you depleted any of your emergency savings? Take the steps to rebuild this fund, making sure to adjust the total amount needed based on your income level (*3-6 months of your income saved is generally recommended). Can you increase your contribution to your retirement plan? Even increasing your contribution by 1% can make a difference.
Additionally, a general rule of thumb is to aim to save at least 10-15% of your income for long-term saving/investing. If you haven’t begun to do so, start aggressively saving this year.
8. Getting too emotional
Investing is certainly not for the weak at heart and is best approached as a marathon, not a sprint. The stock market can and will change on a daily and weekly basis. It is important to stay the course, remain patient, and avoid getting overly emotional (positively or negatively) as your emotions can lead you to overreact or make an impulsive financial decision. To that end, working with a financial professional can help remove the emotional aspect of your financial relationships by managing your accounts for you.
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