We all make financial mistakes at one point or another. Whether it’s jumping on to a bad investment, missing a payment deadline, or simply succumbing to a “Keep up with the Jones’s” mentality that prompts us to overspend, we all could save money in the end with better financial knowledge.
A recent study by the National Financial Educators Council (NFEC) found that 28.8% of American’s aged 65 or older said that they lost money due to their lack of financial knowledge. How much? They stated they lost an average of $30,000 or more in their lifetimes.
But the savvy person could argue that it’s the potential income loss from that $30,000 that is the most disheartening. By looking at a standard investment calculator (www.calculator.net), you can calculate what $30,000 could have generated over time with an investment fund.
For instance, let’s say the average person, we’ll call him John, makes most of their financial mistakes by age 35. If John attends financial education classes at an early age to avoid making financial mistakes, it puts John in a position to save that $30,000 instead of losing it. If John then invested the $30,000 (at age 35) into a low to moderate risk IRA account with a return rate of 5%, that $30,000 would grow into $129,658.00 by a retirement age of 65!
What can you do to avoid financial mistakes? You don’t have to be a mathematician. Here are a few tips to help you choose a better financial future:
Pay your bills on time.
Avoiding late fees is the first step to a better financial future and less stress in your life. Sometimes $15 here an $30 there doesn’t seem like a lot, but it adds up quickly! Using our financial calculator again, we find that if we pay a $30 late fee every month from the time we are 18, we lose $16,920 over a 47-year period until we reach retirement age of 65. That means that if we paid our bills on time, we could put that $30/month in savings rather than wasting it on an avoidable late fee, resulting in a nest egg of $16,920 at age 65. Or, if we put $30/month into our low to moderate risk IRA account? That $30/month could grow to over $65,000!
Save for Rainy Days
When life is good, it’s hard to imagine that hard times will ever come. But life is cyclical with up and down financial needs. If you are young and don’t have a lot of family obligations, consider working a part time job in addition to your full-time job until you have 6 months of living expenses built up in your savings account. Then once you decide to let go of that extra job, continue setting money aside from your regular pay check.
Don’t Work for Free
It’s tempting to want to take an exciting position to get experience in a certain job market that interests you, but if you don’t have a paying job, consider getting first a paying job and then doing extra part time internships (paid or unpaid) to get that experience and training you are looking for. Expenses add up quickly and without a paying job, you’ll be underwater and overstressed in about one month. It’s not worth it. Not having a paying job could set you on a bad financial course you will have a very difficult time recovering from.
Download a Spending Tracker App
Most people think they spend a lot less than they actually do. When you ask people to write down their expenses on paper, they typically leave out the trip to the coffee shop, the restaurant splurge, the new pair of jeans, pet food and care, among many other small items. These small items can add up to big bucks! When you look at their bank statements, it shows they are spending $200-$500/month more than they actually think they are spending. No wonder their credit card bill comes and they can’t pay it! Truth be told, we all have expenses that do not happen every month and these are usually the ones we forget to calculate into our overall budgets. The best solution to this is to download a budget or spending tracker app that automatically links to your credit cards and bank accounts. The best trackers can automatically categorize all your purchases so you can better understand where your money is going. After 3-4 months using the spending tracker, if you find you are falling behind on your bills but you’ve spent $200 going out to eat, it’s probably time to re-evaluate, make a trip to the grocery store where you’ll pay a lot less for food than at a restaurant, and stay home to eat instead of going out.
Re-evaluate Your Credit Card Usage
Are you a compulsive spender who is constantly spending up to the limit on your credit card and always carrying a balance? Here’s the truth. Having a credit card can build credit and good credit can help you with getting better interest rates for a home or auto loan. But if you are constantly pushing to the limit of your card and not paying off the balance at the end of every month, you are losing a lot of money. For instance, if you make purchases on your credit card totaling $1000 and then make a minimum payment of $25, at the average of 18% APR, it will take you over 5 years to pay that card off and you’ve wasted $538 dollars in interest. For a lot of people, credit cards work. But for some, they can provide an unrelenting temptation to spend money they don’t really have. If you fall in the later category, steer clear of credit cards.