by Kailey Hagen | Jan. 30, 2020
Start 2020 off right. Avoid these common financial errors.
The new year is finally here and that means a fresh start for everyone. You may not have made any financial resolutions, but that doesn't mean you can ignore your finances altogether. This can lead to costly mistakes that could continue to haunt you for months or even years to come. If nothing else, make a resolution to avoid making these common money mistakes again in 2020.
Emergencies strike without warning and they often come with large bills attached. If you don't have any savings to cover these unexpected expenses, you might have to take on debt. And this can saddle you with interest payments that prevent you from reaching your savings goals or may even make it difficult to stay on top of your bills.
Start an emergency fund today if you don't already have one. It should contain at least three months' worth of living expenses or six months' worth if you want to be extra secure. It's up to you to decide which expenses you want to include. It could be every expense you have in a month or just the bare minimum, though if you choose to only include the essential expenses and you lose your job or are unable to work, you may have to tighten your belt.
Decide how much you can comfortably save per month and keep putting that money into your savings account until you hit your goal. Reevaluate your emergency fund whenever your circumstances change, including when you get a new job or bring a new member into your household. You must also remember to replenish your emergency fund after you use it.
If you want to reach your savings goals and avoid overspending, a budget is essential. Create one now that you can use for the rest of the year. Start with your basic monthly expenses, including your rent or mortgage payment, groceries, utilities, and transportation costs. Then, allot a certain amount of money each month toward your financial goals, whether that's paying down debt, saving for retirement, or saving for another milestone. Decide what to do with the money that's left over. You can spend it on things you enjoy or you can put extra money toward your financial goals if you'd like to reach them faster.
Do a quick review every month to see how well you've stuck to your budget and make any adjustments you feel are necessary. Consider using a budgeting app to help hold yourself accountable if you're tempted to stray from your budget.
You probably included your recurring monthly expenses in your budget, but many people tend to overlook holiday and seasonal expenses that may only come along once per year. In the summer, for example, you may have more travel expenses and you might have to buy gifts for any weddings you're invited to. Meanwhile, the winter holidays bring higher gift and food costs, as well as possible travel costs of their own.
Then, there are the other expenses we don't often think about, like car registration fees, insurance premiums, home and yard maintenance, and annual subscription fees. Go back through your bank account and credit card statements from the last year and look for any upcoming costs that you may have missed. Add these into your budget too so they don't catch you by surprise this year.
Paying bills late brings late fees, but even more dangerously, it can tank your credit score. This can make it more difficult to get a new loan or credit card when you need it. If you are approved, you'll probably get stuck with a higher interest rate. Late payments stay on your credit report for seven years, so you should avoid them whenever possible.
If you struggle to remember to pay your bills on time, set up automatic payments or set reminders for yourself. If part of the problem is that you don't have the funds to pay your bill, look for ways to free up more cash in your budget or try to boost your income by working extra hours or starting a side hustle.
Credit card debt is costly and offers no benefits. It can threaten your financial security because your balance will continue to grow over time unless you're serious about paying it back. Prioritize paying it down this year and try not to use your credit card unless you have to. That will prevent your balance from swelling further.
One way to pay down your debt effectively is to write a list of all the cards you're carrying a balance on and note their APRs. Make the minimum payment on all of them and then put all your extra cash towards the card with the highest APR first. When that's paid off, move onto the card with the next-highest APR and so on until all your cards are paid off. You could also try transferring a balance to a card with a 0% introductory APR or taking out a personal loan to cover the balance. This will get you predictable monthly payments that can make paying back your debt easier.
Avoiding these five mistakes can go a long way toward reducing your financial stress in 2020 and put you on the path for increased financial security in the years to come. If you're guilty of making any of these errors in the past, take steps to correct them now.
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