For many Americans, maintaining good financial health is a difficult thing to master. In fact, 69 percent of consumers say they’re not satisfied with the state of their finances. Many of them are falling victim to widespread financial mistakes that are tanking their personal wealth.
If you want to build your wealth, you need to learn which mistakes to avoid. Read on for the top 3 most common—and most damaging—financial mistakes.
Top 3 Common Financial Mistakes That Will Cause Long-Term Damage
1. Not Setting a Household Budget
Not setting a budget is one of the easiest financial mistakes to avoid—and it has the capacity to do some real damage.
That’s because small, uncontrolled purchases have the tendency to add up. Frequent restaurant meals, movie nights, and shopping trips can eat up a budget surplus in no time.
That’s a big problem if you’re in debt or trying to save for a big purchase down the road, like a house or car.
How to Fix It
Set up a budget. You’ll need some key bits of data first:
- Your income
- Your necessary expenses
- Your average spending habits
- Your financial goals
After allocating money to your essential bills, determine how much money you need to meet your financial goals. Look through your spending habits and see where you can make some cuts.
Just remember to give yourself a little extra spending money.
2. Taking on Too Much Debt
Debt has a tendency to trap consumers in a cycle. They take on debt they can’t afford, then as those bills pile up, they take on even more debt to try to pay them. With every late payment, their credit scores suffer.
Credit cards and student loans are two of the largest drains on Americans’ wallets. According to MarketWatch’s State of the American Wallet report, these two industries are responsible for $1.02 trillion and $1.4 trillion in debt, respectively.
How to Fix It
When it comes to debt, the best course of action is to avoid it whenever you can. If you’re already knee-deep in overdue credit card bills or delinquent loan payments, however, it’s time to mitigate the damage.
First, bring your accounts up to date.
If you have student loan payments you’re having trouble paying, speak to your lender about an income-based repayment plan or temporary forbearance.
Next, prioritize your debt.
Look through your loans and credit card statements and figure out which bill carries the highest interest rate. This is the account that will end up costing you the most money over time, so try to pay it down first.
Finally, start making additional payments.
As you make regular payments on all of your debt, take any surplus in your budget and put it toward your first priority debt. After you pay off one balance, turn your attention to the next account on your list.
Eventually, you’ll find yourself debt-free.
3. Neglecting Your Savings
Setting up a healthy savings account is often the last priority on people’s minds, especially when they’re facing a personal debt crisis.
Market Watch’s report also states that 44 percent of Americans say they don’t have enough saved to cover a $400 emergency—let alone any savings for their retirement. That’s a big problem.
How to Fix It
Start saving! Even a little bit of savings added each month will help, but if you really want to build a healthy safety net, it’s time to get aggressive.
Your ultimate goal should be to save enough money to cover six months’ worth of expenses.
When it comes to your retirement, it’s never too early to start planning. After building a six-month safety net, look into a traditional IRA or Roth IRA.
Heather Michelle Tipton 