Many of us set resolutions every new year, and chief among them is the goal to improve our finances. For some, that may mean saving more; for others, landing a better-paying job; and home ownership is still the American Dream for most families.
But before we can tackle this financial Bucket List and move forward, it’s important that we identity the money mistakes that we’re making that are continuously setting us back. We’ve identified 18 things that are common among the average American consumer, causing them to always be short on money and even hurting their families.
So, if you want 2018 to be the best year yet for your finances, stop doing these 15 things that are making you broke!
- Maxing out credit cards
We’re certainly a nation that loves debt, as we now have more than 1 trillion in credit cards and other revolving debt, an all-time high. Add in mortgages, student loans, car loans and medical debt, etc., and U.S. consumers personally owe more than $12.9 trillion – the GDP of about half the countries in the world!
In fact, the average adult with debt in the U.S. has 8 credit accounts, $16,000 worth of credit card debt alone, and is paying about $430 a month just in minimum payments.
While there’s nothing at all wrong with having credit cards and using them responsibly (you should keep some revolving debt), the problem comes when we max them out – with no plan to pay them off.
Paying only minimum payments means that the average $10,000 balance at 15% interest will take 15 years and about $22,000 to pay off completely.
Maxing out cards also impacts your credit score, since about 30% of your FICO is calculated by the amount of debt you hold compared to your total available credit (called credit utilization.)
So stop maxing out those cards and make more than just the minimum payment this year!
- Not saving
We understand that money is tight and there’s usually more month than paycheck; not the other way around. But one of the principal ways you can ensure that money isn’t always this tight in the future is to start saving. And there’s no better way to put away funds for a rainy day than automatically saving out of every paycheck (or tax refund).
In fact, the majority of Americans couldn’t even come up with $600 today without borrowing or selling something, and sudden financial setbacks like a job loss, medical problem, broken car or other unexpected expense can send about 40% of families into dire financial circumstances.
The best way to combat that – and make sure that you’re always prepared and won’t make even worse short-term financial decisions – is to save a certain percentage of your paycheck automatically, before you even see that money. To resist the temptation to spend it, keep a savings account without an ATM card so it’s not easy to access. You’ll be amazed how it adds up!
- Using payday loans, check cashing, and rip-off credit accounts
Remember how we just mentioned financial emergencies? When the roof leaks, someone gets sick, or the job starts laying people off, those cash crunches often result in people making panicked, short-term financial decisions just to get by. Frequently, those result in cash advances on credit cards, payday loans, using check cashing establishments, applying for a bunch of new credit cards at once, or looking for other personal loans.
The terms and interest rates on these loans can range from incredibly high and expensive all the way to usurious and illegal, and usually put people in a much worse financial situation than when they started.
- Making impulse purchases
Have you ever noticed that retail, department, and grocery stores line the checkout aisles with certain items? They do that on purpose, of course, because they understand that the majority of consumers will make impulse purchases; buying things they don’t need and didn’t plan on purchasing.
Just how much can you save by skipping the magazines, sodas, electronic knick-knacks, and other impulse purchases every month? Furthermore, do you even know how much you’re spending on coffee, lunches, and meals out? It all adds up.
Try this: For one month, carry around a little notepad (or just use your smart phone – there are great apps that help you track every dollar you spend), and write it down every time you spend a dollar. At the end of each week, add it all up according to categories. You’ll probably be shocked how much you’re spending on things you don’t need or necessarily even want – and that money could be going to savings, paying down your credit cards, or other good use.
- Not checking your credit periodically
Did you know that only 1 in 4 people check their credit report annually, and 60% of Americans don’t even know what their credit score is now? Checking your credit report regularly is so important for a host of reasons:
- 25% of credit reports contain errors, inaccurate or duplicate information.
- ID theft and credit fraud now affects nearly 10% of the population every year, and the recent Equifax Hack saw the personal data of about 167 million Americans compromised.
- These days, your credit score is so more important than just getting a mortgage or applying for a new credit card. Getting an apartment, the insurance rates you pay, your utility and cell phone accounts, and even getting a new job may depend on a clean credit report and a good score.
- Not looking into refinancing your mortgage
If you do own your home already, congratulations! While it may be the best investment you’ll ever make, there’s no denying that you’ll be paying it off for a long time (usually 30 years) and for a huge sum of interest – probably more than the original home price! So every smart homeowner should inquire with their mortgage broker if a refinance is available and something that would help them save.
It’s free to talk to your favorite loan officer and get an idea about your options, and lower-interest mortgages or refinancing into a product like a 15-year loan may save you tens (or even hundreds) of thousands of dollars over the years. You may even be able to save money on your monthly payment AND pay the home off faster, but the worst that can happen is that they tell you that you don’t need to make a change.
By the way, the better your credit score, the lower your interest rates and payments will typically be!
- Not reading the fine print
That 0% credit card offer sure looks great, but what will the rate be after that introductory period? Is that great low mortgage payment fixed, or will it go up as other interest rates rise? What are the fees and charges associated with that new student loan or business loan?
Too often, we’re offered new credit that looks like a no-brainer, but comes with some important stipulations that will make it way more expensive in the future.
Nothing is free in this world (except great credit advice from Nationwide Credit Clearing!), so make sure to read the fine print and know exactly what you’re getting into before you sign on the dotted line. Any loan, investment, or other financial vehicle is sure to come with fees, charges, and interest rate details that are crucial to understand. Read all you can but it’s also a good idea to ask questions – and get the answers in writing!
Look for part two of this blog soon, where we’ll cover the next eight things to stop doing if you don’t want to be broke!