This year, resolve to get smart about finances! If you need somewhere to start, here are seven financial mistakes to avoid in the New Year.
- Making Minimum Card Payments
All credit cards have a minimum monthly payment—but that doesn’t mean it’s all you owe. Always aim to pay off your full statement balance every month. That way, you avoid building interest and never need to pay more than the cost of your actual purchases. If times are tough and you’re having trouble going above the minimum payments, don’t beat yourself up, but do analyze your finances as a whole and see if there are any places you can cut back in order to pay off your credit card debt sooner.
- Not Tracking Your Spending
Thanks to debit cards, credit cards and online shopping, it’s easy to spend money without really thinking about it. This year, resolve to keep track of your spending! Download a budgeting app to keep a record of purchases, or at the very least, review your monthly card transactions line by line. Pay special attention to any “invisible” subscription expenses that you might have purchased and then forgotten about. Now is a great time to cancel any subscriptions you’re not using.
- Taking Out Payday Loans
If you need to borrow money with a less-than-stellar credit score, payday loans can look pretty appealing. Payday loans offer fast cash and no credit check—but on the flipside, they come with a sky-high interest rate and cumbersome terms that can wreak havoc on your finances. Instead of taking out a payday loan, consider other options like asking your employer for an advance, utilizing a line of home equity credit, or applying for a credit card with a reputable lender.
- Neglecting Emergency Savings
Don’t make the mistake of neglecting your emergency savings! Experts recommend having enough money in your emergency fund to cover three to six months of living expenses. If your savings account is coming up short, commit to putting a certain amount of money aside each month to boost your rainy day fund. Check the HUECU blog for more information on how to balance saving for emergencies versus paying off debt.
- Missing Out on Tax Advantages
Missing out on tax-advantaged accounts and investments is basically saying “no” to free money! Make the most of the tax advantages available to you. A good place to start is with an individual retirement account (IRA) which offers tax-advantaged savings for the future. A traditional IRA will give you tax-deferred contributions for immediate tax benefits, while a Roth IRA offers tax-free growth for financial advantages in the future. Read more about IRAs on the HUECU blog.
- Not Using a Credit Card
If you’ve been paying solely via debit card or cash, consider getting a credit card. While credit cards do present the risk of debt, they also offer numerous benefits. Just be sure to pay off your entire balance every month! As long as you’re not running a balance, credit cards can only boost your financial health. They help you build credit, and the right card will offer rewards such as cash back or travel points. You can also use a credit card to consolidate and pay off other debt.
- Impulse Spending
Amazing things happen when you break the impulse spending habit. You’ll discover more time, more money, and more financial stability for the future. How to break the habit? Start by disabling shopping apps from your phone and leaving credit cards at home if you think you’ll be tempted. Next, choose a big, end-of-year savings goal and write it down. When you’re tempted to spend on tiny purchases, remember your goal! Another great technique is to become accountability buddies with a friend or spouse. Discuss your goals and encourage one another to resist unplanned impulse buys.