Everyone makes financial mistakes at some point in their lifetimes. However, you can learn how to avoid some of the common missteps. Instead of losing money with financial miscues, start accumulating wealth.
Excessive use of credit cards
Many people use credit cards to the point that they are constantly living on borrowed money. Buying day-to-day essentials on credit shouldn’t be the norm. Use your debit card or cash for gasoline, groceries and all your household expenses. Select one credit card, hopefully with a high limit and a low interest rate, and get rid of the rest. Quick tip: Credit cards with cash-back incentives are great, but only if you pay them off promptly. Getting two percent back when you have a high balance and a double-digit interest rate isn’t in your best interest.
Not checking your credit score
One of the biggest financial missteps you can make is not checking your credit score on a regular basis. If you don’t look at your credit reports every three months or so, you leave yourself more vulnerable to identity theft and fraudulent charges. Request a free annual report online from the three major credit rating agencies — Equifax, Experian and Transunion — and sign up for one of the services LifeLock offers, such as LifeLock Ultimate, to help protect your identity and monitor your credit rating.
Putting off buying life insurance
As you get older, the more expensive life insurance gets. It’s much better to get insured at 25 than it is at 55. Even though you feel healthy now, you never know when your time might be up. Don’t put off purchasing life or health insurance.
Starting to save for retirement too late
When you are in your 20s and 30s, you think retirement is so far off in the future that you don’t have to worry about it. However, that’s the best time to begin saving. If you’re over 40, you’re behind. Start saving as early as possible and make it a goal to put at least 10 percent of your income into savings. The later you start, the higher percentage you’ll want to save to accumulate wealth for retirement.
Leaving your valuables uninsured
Whatever you value should be insured — your life, your home and your other valuables. If you have collections of anything — art, gold, wine or anything else of value — have it insured and get updates regularly as your items appreciate. A valuables policy is relatively affordable and you don’t want to be left underinsured (or not insured at all) in case of theft, damage or anything else.
Holding a 30-year mortgage
When you pay for your home over a 30-year period, you usually end up paying over two-and-a-half times its purchase price. Having a 15-year mortgage instead of a 30-year mortgage can save you considerable money. And wouldn’t you rather be using that money to build wealth rather than it just going to interest?
About.com’s Financial Planning site has some great examples on how you can save big on your mortgage. Even an extra payment each year can make a big difference in the long run.