There are many small things you can do to stay smart with your finances and keep on the right track, but unfortunately, the same goes for not being smart with your finances. There are many small financial mistakes which can lead to huge problems straightaway or later on down the line, but because they are only small mistakes they are often overlooked. You need to know these errors right down to the smallest and most innocuous ones, and this guide highlights them so you can understand and avoid them. Here are small financial mistakes with big consequences.
1. Going over Your Budget
A financial budget is the best way to plan your finances and keep costs down, but most people make the mistake of creating an unrealistic budget that does not take everything into account. The best way to address this problem is to create a provisional budget for the first few weeks, and then create a strict budget once you understand your own spending habits. With this knowledge you can also cut down your spending by making different choices.
Going over your budget, even by the smallest amounts, will build up to large amounts over time. Prevent this from happening by remaining disciplined with your spending, and allotting part of your budget for ‘unforeseen’ purchases such as impromptu dining or nights out.
2. Buying the Essentials
Any money-conscious consumer should make the most out of value brands and bulk purchases, especially for grocery staples. The essentials in life don’t need to be the best you can get, and many people fail to make significant savings by buying pricier foods in small quantities, as opposed to cheaper foods in bulk quantities. Consumers also fall into the weekly shop routine where they buy the same things each week without giving it much thought, but this is a mistake as it means missing out on offers and deals that can really help you to save money over time.
3. Credit Balance versus Bank Balance
One of the most common mistakes is not understanding which aspects of your finances are costing you the most money, and not understanding the correct placement of your money to minimize the amount of interest you have to pay.
For example, say you had a credit card balance of $800, and $800 of savings in a bank account. You might think that it would be better to keep your savings untouched so it can earn you interest, but the interest you incur on your credit balance will far outweigh the interest you receive on a bank balance. This means you will pay less much interest if you pay off your credit card balance fully with the $800 in savings. The mistake in this case is thinking that maintaining a positive savings balance is better than reducing a credit balance. The savings might look nice in your bank account, but looks can be deceiving.
4. Paying the Minimum with Credit
Another small and related mistake is relying on minimum payments to pay down a credit balance. If your APR is anywhere over 24% and your balance over $700 and you pay only the minimum, only a small fraction of that payment will actually go towards paying down the debt – a big chunk of it will be paying the interest. Make sure you pay extra money to bring down your balance whenever you can.
5. The Fee Cycle
If you live at the limit of a bank account overdraft, the smallest mistakes can have a big impact in the following months. If you go over your overdraft limit by any small amount, you will usually incur a significant fee, and if you don’t know when this fee will be charged to your account, it could take you over your overdraft again, putting you in an even worse situation. Snowballing fees are a big problem for many, but the solution is simple: know exactly when your fees will be charged to your account and make sure you have the funds to pay for it. Obviously, you should also do your best never to go over your overdraft in the first place. If you are facing troubles, get in contact with your bank – they can often help you by reducing or removing the fees.
6. How do You View Your Purchases?
Do you see your product purchases as investments? Almost everything that you buy can be sold later on, but many people make larger purchases without taking resale value into account. If you buy an electronic item and do not keep the packaging or do not handle it with care, the product’s value will be much less when the time comes to sell. Not everyone buys with resale in mind, but no matter what your intentions are, it is always a mistake not to keep your purchases in the best possible condition. When times get tough, this could make hundreds of dollars worth of difference.