Money mistakes are everywhere. What’s worse is that avoidable ones exist. I’ve made countless avoidable money mistakes in the past and will continue to make mistakes in the future. However, I’ve been able to fix some of the habits after going back and analyzing my spending behavior. I’ve found some common ones that I used to make and some that I’ve seen people do. I’ve highlighted some of them below that can be fixed just by doing something differently. One avoidable money mistake snowballs into bigger ones down the road so it’s better to fix them right away!
Avoidable Money Mistake #1: Credit Cards
Not Using Credit Cards
I started using a credit card when I was a Sophomore in high school, 10 months AFTER I turned 18. That’s 10 months worth of spending that I could have gotten rewards on plus time that could have built my credit history. I should have applied for credit cards earlier that pays me money for spending money on things I need.
Not only do I love credit cards for the rewards points, I love credit cards for giving me extra time to pay off my expenses. It boggles my mind that I can pay almost 2 months later (depending on when I make the purchase) for something that I bought today. Without paying interest. I learned in my finance classes to always take interest-free debt, which I gladly do every month.
Not Paying the Full Balance
It’s all well and good that my credit cards give me extra time to pay off my expenses and a great cash back rate, but not if I make a purchase that I can’t pay off when the statement bill comes. Credit card interest rates can range anywhere from 10 – 25% APR, depending on credit history and other factors.
Not paying the full balance off every month defeats all of the hard work you’ve put in to research the best cash back credit cards and the rewards you reap. It also worsens your credit score, that the future you will pay for.
Not Optimizing Rewards
This one took me some time to figure out, but it was worth taking the time to follow a simple 2 step process. First, when I spent money, I paid attention to the categories that I was spending the most money on. Groceries were my highest expenses, then restaurants, then Amazon, and so on.
Second, I specifically looked for credit cards that offered extra cash back rates for those categories and had no annual fee. Credit card companies profit off my spending, there’s no reason to pay them more.
For example, AmEx Blue Cash (not preferred, I don’t want to pay an annual fee) is offering a 3% cash back rate on groceries (my most expensive expense!) and a 2% cash back rate on gas. I signed up in a heartbeat. They emailed me 2 weeks ago that they’re offering a 6% cash back on groceries and 3% cash back on gas. I’m not changing my spending behavior, so I will gladly take those extra rewards!
I have a credit card that pays me back 2% of my spending. So my minimum cash back rate is 2% when there are numerous credit cards out there that only pay 1% cash back. Then if I factor in my rotating 5% cash back credit cards, I increase my rewards. Last quarter, I got paid an extra $25 for spending money in restaurants (plus a sign up bonus of $150 that I met). It’s not earth-shattering by any means but it’s 1000% better than nothing.
Avoidable Money Mistake #2: Paying Retail Price
Using Cash Back Portals
By using my credit cards, theoretically, I never pay full price for any purchase. I get 2% off the top. However, when shopping online, I look to do better than that. I always do a quick check on eBates (affiliate link) before I make a purchase. I get an extra 2 – 50% off, depending on the retailer on top of my 2% credit card discount.
If you sign up through my affiliate link on eBates, you get an extra $10! As a result of this service, I never pay full price when shopping online and earn an extra $150 a year.
I’m a big fan on negotiating. I negotiated for my car and my phone bill in the past 4 months and was (somewhat) successful on both of them. It’s somewhat successful because they weren’t jaw-dropping deals but it was something that was better than nothing. I saved about $300 in total just by asking (I wasn’t skilled by any means) and didn’t pay full price.
Avoidable Money Mistake #3: Company Benefits
Not Having a Beneficiary
I encourage everyone to take advantage of investing in 401k’s if your employer offers them. They save me a ton of money on taxes plus after a year of working, my employer matches up to 3%. While that’s all well and good, the balance could be up for grabs if I don’t list a beneficiary and something were to happen tome. If I hadn’t listed a beneficiary to my account, the balance would be at the mercy of my retirement plan. It would go through a drawn-out legal process before distribution, which may or may not go to my family.
Withdrawing Before 59 1/2
Withdrawing before you’re 59 1/2 means that you have to pay a 10% early withdrawal penalty fee. There are ways to avoid this penalty fee that Be Net Worthy highlights here but even then, you can’t take out funds all at once whenever you want. If you want to take out a lump sum, the 10% early withdrawal fee can’t be avoided. The penalty ruins the hard work you’ve put in to save money, pre-tax.
Avoidable Money Mistake #4: Ignoring Additional Income
The average millionaire has 7 streams of income. I have 1 right now. I saw a post early by the penny hoarder that Target is hiring 70,000+ seasonal workers and I might apply to get a little extra money. On top of this, my employer pays me extra money to stay healthy and fit. I’m also looking into some survey websites to make a little extra cash. With the internet available these days, there’s endless income opportunities! We just have to take the time to find it.
I take advantage of Google Screenwise Panel (now known as Cross Media Panel) and make an extra $104 a year doing nothing. Also switching your banks (I now use Discover Bank) that pays more interest helps. I made an extra $200 last year just by switching from a bank that paid a whopping 0.01% interest to Discover that paid out 0.95% a year.
There are countless money mistakes that I’m probably going to make going forward. What’s important is that I recognize these mistakes and fix them so that I can have a little extra cash at the end of the year. Having a little extra doesn’t hurt!
Readers, did I leave anything out? Is there an avoidable money mistake that you feel should be included? Let me know in the comments below!
My goal is to enable your success in personal finance so that you can realize the American dream. The first step is starting today!
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