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To date my biggest financial mistake was not to diversify stock market investment. I did invest all my stock money in one stock, eventually the financial giant got vaporized along with all my investments. We all commit some kind of a financial mistake in our life. This article from guest poster Joshua should make you cautious and little bit more aware to not to commit a major financial mistake. Enjoy the post!
You work hard for your dollars as do I. When we make financial mistakes, those hard earned dollars seem to fly right out the window. Even worse, often times, we don’t even know that we are actually making a mistake at all. Therefore, even though you make a pretty good living, you may still feel like you are constantly in the red. Here are some of the most common financial mistakes that consumers make and what you can do to avoid them…
#1 Mistake – Overuse Of Credit Cards
When used properly, credit cards make for awesome financial tools that can help you on your journey to financial stability. However, if you don’t use them properly, you could find yourself in a very bad financial position. The worst part about this is that, although credit cards are important in some ways to a financially stable lifestyle, there is no middle or high school course that I’ve ever heard talking about them.
That being said, when most of us get our first credit cards, we look at them like a great way to get things that we couldn’t afford yesterday. When the first one is close to an uncomfortable balance, we often go after another. This revolving process eventually leads to financial hardship for many people.
How To Avoid Overuse Of Credit Cards
The key here is limiting the amount of credit cards you have and what they are used for. I generally advise my clients to have 2 credit cards at most. The one with the lowest interest rate would be the card that’s used for large emergency purchases because holding a balance there won’t cost as much as holding a balance on the other card.
The second card is for the security credit cards offer in day-to-day purchases. This would be your rewards credit card ideally. Of course, the day-to-day purchase card would be paid off completely on a monthly basis. The day you can’t afford to pay off the day-to-day card, you realize it’s time to cut back on spending and get your finances in order.
(Related – When Should you Use a Credit Card?)
#2 Mistake – Food Waste
We often see CNN specials talking about how much food Americans waste annually and, it’s astonishing to see the totals. That food waste often equates to thousands of dollars annually in some households.
How To Avoid Wasting Food
What works for me is a pay period shopping day with an iron clad list. I admit, I used to be one of those shoppers that would go out whenever I thought I needed something. I’d go to the store for milk and come out with $50 worth of food that I didn’t always eat.
(Related – Tips To Stay Away From Impulse Buying)
About a year ago, I started to realize how much money that was really costing me. I did some math and noticed I was easily spending $450 per month on food. That just didn’t make sense. Now, I shop the day after pay day.
Before I go shopping, I make a list of everything I might need until the next pay day. This way, I don’t make frivolous purchases on those extra trips during the week and I have everything I want. Now, I eat like a king, waste very little and spend about $200 per month on food!
Another thing I did to save money on food is change my eating habits all together. I used to love shopping in the inner aisles of the store. However, I found out that just about everything in the inner aisles of the store could be made with the fresh items you find in the cold wall aisles of the store.
Not to mention, because it takes money to prepare the items you find in the center aisles and money to package them, it is more often than not much less expensive to make what you enjoy right at home.
(Related – Some reuse of Fruit Waste at your Home)
Mistake #3 – Not Budgeting
Believe it or not, majority of American households do not run on an active budget. Yes, they like to have a little savings and try to make their payments for everything on time but, without a budget, many people often waste quite a bit of money that could be used in very productive ways.
How To Avoid Being Bit By The Decision To Avoid Budgeting
The bottom line is, to live a financially stable lifestyle, you are going to need a budget. The good news is no matter how much income or how many expenses you have, making a livable budget shouldn’t be much work.
I prefer to make spreadsheets that cover my monthly expenses, debts, income sources and my savings and debt relief goals. I recently wrote a guide to making the budget spreadsheet that I use. Please feel free to read the guide and get yours started! Also, here are some budgeting Tips from SB.
(Related – How to Stick to Your Budget Consistently)
Mistake #4 – Not Monitoring Credit Reports
Your credit report is one of the most important reports you will come across in your life! Although the number of consumers that are monitoring their credit reports continues to grow, there are still tons of people who have absolutely no idea what is being reported with their name and social.
Not knowing what is being reported could lead to inaccuracies on your credit report or, even worse. If you don’t monitor your credit report you will not be able to act quickly in matters like identity theft.
The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months – Federal Trade Commission
How To Get, Check And Monitor Your Credit Report
Don’t worry, I didn’t write this article to try to get you to sign up for a free trial of some free credit report website that you have to give your credit card number to get! The truth is, your credit report is free once a year from each credit reporting agency.
Although, not all reports will be exactly the same across the board, they are generally pretty similar. That being said, unless I notice an inaccuracy in the first report I pull, I request a copy from each one every 4 months. This way, I know exactly what is going on 3 times a year!
Getting your credit report is pretty simple, go to www.AnnualCreditReport.com and follow the steps to requesting a copy of our credit report. Once you get your report, the important part is taking the time to read every word on it. In most cases, you will find that your credit report has more information about you than you thought. If you find any mistakes in your report, you should dispute them right away.
To dispute a remark on your credit report, simply go to the website for the reporting agency that is reporting the inaccurate information. Once on the website, look for instructions on how to dispute inaccuracies.
Final Thoughts
These are all financial mistakes that are made by several people each and every day. However, in most cases, these mistakes are made as a result of lack of knowledge that they are even making them. I hope that my article has made you aware of important aspects of obtaining financial stability. If you have any questions, concerns or just want to say hi, please feel free to leave a comment below.
About The Author : This article was written by Joshua Rodriguez, proud owner and founder of CNA Finance. Join the conversation with Joshua on Google+!
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I’m proud to say I do all of these, although, I hate budgeting. I know it is a necessary evil to identify wasted spending. Too bad there aren’t any more bells and whistles to that process to make it more interesting.
Hey Greg,
There are all kinds of fun ways to make your budget spreadsheet a bit more interesting to work with. You could do things like make graphs to track your progress with debt and savings. Seeing the colorful images make you want to move the line for the next update and often makes budgeting more fun! As a follow up to my recent post, How To Make A Budget Spreadsheet (http://cnafinance.com/how-to-make-the-ultimate-budget-spreadsheet/), Friday, I will be posting How To Make Budgeting More Fun. I hope you swing by to take a look! Thanks for your comment!
Cooking at home and bringing food to work, etc. helps conserve food funds, as it is hard to avoid spending on outside eating (especially in large cities).
Hey Mike,
Thanks for your comment! I couldn’t agree more!
Great Post. I have been following all these. More important of all is to not let your emotions decide while investing in stock market. Not setting aside money for retirement is also one of the mistake which people don’t follow much.
Hey Irfan,
I couldn’t agree more, after all 30 year 401(k)s pay out much less than 40 year and we only have so long until we retire! Great point!
We used to be super guilty of food waste. Luckily no more!
I’m right with you Michelle, I felt like I threw out a cow a year! Now, I’ve done simple things to slow it down and, we’re doing pretty well now. Although, I will admit, we could use a bit more work! Thanks for your comment!
Most financial mistakes start from overusing the credit card. People should still learn to budget their spending even though they are using a credit card.
Hi MY Multiple Incomes,
I agree. Overuse of credit cards is one of the leading causes of financial hardship. Thanks for your addition!
Budgeting in advance is huge for my family.
Without a budget it’s too easy to justify $50-100 expenses when you only look at them in a vacuum. They all seem reasonable by themselves.
Only at the end of the month did we realize how much we’d spent in TOTAL. A solid budget at the beginning of the month has helped us avoid this type of ad hoc decision making.
Hey Bob,
Great point and that’s awesome that your budget has helped! thanks for your comment!
Food waste is definitely a problem in our house. Instead of having a set menu for the week, we wing it which means buying too much of one thing or not enough of another. Our grocery bill is really too high for two people. I’m on top of most everything else, though. Great list!
Thanks for your comment Little House. You’d be surprised how much making a list before you go to the store can do for your bank account!
I’d have to say that monitoring one’s credit on an ongoing basis is overkill, especially if you’re giving suggestions for “day-to-day” life issues. Besides, the real issues won’t show up for sever weeks or months the way creditors report these day (some going as long as 2 month between updates).
Hey Eric,
Thanks for your comment. Although the article is for the day to day basis idea, I agree with you on credit reports. Because you are able to get 1 report per year from each agency for free, I generally advise my clients to go through their credit report with a fine tooth comb about once every 4 months. Thanks again for your comment!
Great advice. I have a lot of credit cards, fortunately most of them already paid off and I put them in a bag full of water and froze them on the bottom of a freezer. Actually I put all of them but three on the bottom of a freezer. Three more cards I have a balance paying off and use only three cards for emergencies, as a bridge when I run out of cash (yeap it is still happening to me when I pay all the bills, but as I am paying off the cards, this is occuring less and less). Hopefully I will be able to eliminate my debt completely and stay out of it for good.
Hey Martin,
It sounds like you’ve got a great plan that’s really working for you! Keep it up!!! Thanks for your comment!
My wife and I have been guilty of #1 and #3 many times in the past. We are trying to finally put our collective financial feet down and stop using the credit cards while sticking to a realistic budget. It is going to be difficult but we are committed to getting ahead and staying there.
Zimmy,
Thanks for your comment! We all learn from our mistakes, without them, we just wouldn’t be us. I’m glad to see that you and your wife have taken the time to pinpoint what may come to be problems in the future and hope your plan for financial stability works out great for you!
Food adds up so quickly! We don’t eat out a bunch. We use to do so a lot more before, but we still spend a lot on food.
Hey Savvy Financial Latina,
There are tons of ways to save on shopping. Some obvious like couponning and budgeting and some are more outside the box like shopping around the edges of the store. I know, what, huh, shopping around the edges of the store? This is where all the fresh foods are. Making your own dinners out of fresh ingredients is a far cheaper way to feed a family than boxed burger patties and pasta. I found that out after doing it for a month and saving over a hundred bucks! Hope that helps you too, thanks for your comment!
I think another great tip is being economical with your utilities. When I go to some people’s houses – I notice they have all their lights on, their windows open WITH the AC on, water just running for no reason, etc. Getting into small habits like saving electricity and water can actually result in large savings over time.
Great point Anton, thanks for sharing!!!
Food waste is a good one that we are probably all guilty of on some level.
We have worked very hard over the past year to avoid this. One area that gets my wife is those expiration dates. They are almost always meaningless, but she likes to throw stuff out if it’s past the date. Argh!
Thank you for sharing the article. It’s very interesting. Hope to hear more from you.