“Do the best you can until you know better. Then, when you know better, do better.” This famous quote by poet Maya Angelou rings true on many levels — including personal finance. Even those who consider themselves to be financially savvy, who strive to make sensible financial decisions, may be making mistakes on a regular basis simply out of habit, or a lack of information. Overspending, relying too heavily on credit cards, and investing in a home that’s just too costly are among the most common financial mistakes even smart people make. If the list below sounds familiar, don’t despair. Financial experts have practical suggestions on how to do better. Read on!
Cure the overspending bug: Plan. Assess. Repeat!
Like so many things in life, financial success starts with a good plan. Create a budget, and then commit to following it. View this document as a living, breathing entity because it needs to adjust and change with the ebb and flow of everyday life. Those who are comfortable tackling this process on their own will find a host of online resources, such as Mint and Nerdwallet, with free, downloadable budget tools. For those who prefer added guidance, consult with a trusted financial professional. Many banks, including Fidelity Bank, offer budget planning as part of their client services.
With one-click shopping, and recommendations for additional items based on the selection sitting in the online shopping cart, it’s easier than ever to blow the budget in a matter of seconds. To avoid overspending, it’s important to stop and assess if the item is a need or a want. For example, a new cell phone to replace a phone that no longer rings is a “need,” while buying the latest iPhone is a “want.”
Another strategy to combat overspending: start paying with cash or debit cards instead of credit cards. A cash-only spending philosophy reinforces the practice of buying necessities and limits the amount that will be spent on non-essentials. It will also address the next common financial mistake — too much credit card debt.
Stop charging essentials: Build good credit with judicious use of credit cards.
Investopedia identifies “Living on Borrowed Money” as one of the most common financial mistakes people make. This includes charging everyday items, such as groceries and gas. With interest rates on some credit cards in the double digits, it doesn’t make sense to charge those items because they’re used and gone long before those bills are paid.
A better approach is to limit credit card use to select purchases, and pay off the balance each month, whenever possible. It’s important to maintain good credit without relying on credit cards for everyday living.
Avoid high monthly car payments: Buy used instead of new.
According to best-selling author David Bach, it’s never worth it to buy a new car. He explains in Financial experts: Don’t make these 5 money mistakes in 2019 for CNBC. The value of a new car depreciates as soon as it’s driven off the lot. Within five years, it will lose 60% or more of its value. Bach recommends purchasing a vehicle in good condition that was leased for 2 or 3 years for substantial savings. Or, if buying a new car because of things like newer safety features is important to you, try to drive the car for as long as possible.
Kibosh hefty mortgage payments: Consider less square footage for more financial peace of mind.
According to a recent article in Business Insider, housing accounts for the largest portion of the average American’s budget, consuming nearly 40% of their take-home pay. That’s the average, which means some people are spending (or overspending) even more. Before purchasing a large home, or renting a spacious apartment, crunch the numbers and be sure to make a choice that will leave enough income for other living expenses and savings. (The general rule of thumb is housing costs should be no more than 30% of pre-tax income). A smaller home may be a better option. When in doubt, consult with a trusted mortgage consultant or banker for advice.
Don’t get caught off guard: Contribute to short- and long-term savings funds.
There’s no doubt about it — this may be the most challenging of all the common mistakes to address, but it’s also one of the most important. Everyone needs a rainy day fund to finance unexpected life events (job loss, significant home repairs, medical bills, etc…) and everyone should be planning for retirement. While this may seem daunting, don’t despair. Addressing the issues above will help in this area, too. For some great tips on short-term savings, click here. To learn more about long-term savings strategies, click here. For even more information, consult with a trusted financial professional, and reach out to a local Fidelity Banker.
Keep working on it, and this time next year, things will be even better.
Fidelity Bank has built a strong history as trusted advisors to the customers served, and is proud to be an active member of the community of Northeastern Pennsylvania. With 12 branches located throughout Lackawanna and Luzerne Counties, Fidelity Bank offers full-service Trust & Investment Departments, a mortgage center, and an array of personal and business banking products and services. The Bank provides 24 hour, 7 day a week service to customers through a variety of digital banking tools, branch offices, online at www.bankatfidelity.com, and through the Customer Care Center at 1-800-388-4380.
Daniel J. Santaniello, President and CEO, of Fidelity Bank, publishes Financially Fit with Fidelity, your guide to financial well-being, every Thursday. If you’re interested in a financial topic we haven’t yet covered or want to subscribe to our emails, please feel free to drop us a line at blog at fddbank dot com. We would love to hear from you.