People commit money mistakes often but there are some you might want to avoid as you start the new year. These are the ones that put your finances down and sticks with you for quite some time. As such, it will not be a good start for your finances if you are left to deal with the damage these mistakes bring all year round. Here are some of them worth looking into.
Maxing out your credit cards is one of the money mistakes people make
This is one of the most overlooked financial mistakes people make at the start of the year. One of the reasons for this is that people have been so used to maxing out their cards that they no longer see it as a problem. It has been a normal occurrence that they simply just pay the minimum if they cannot pay the full amount. It also does not help that credit card purchases are on the rise again.
This brings in different types of problems for you such as interest and other fees imposed by your lender. They are able to do this once you decide to pay only the minimum amount. What happens is that you are left to pay a big amount of interest every month. Your repayment is extended longer where you mostly pay for interest and barely make a dent with the principal amount you borrowed. This is one of the ways your lender earn from you.
The other concern is your credit score. Yes, you are not behind with your payments considered you send them on time even if it is just the minimum amount. However, you need to take a look at your credit utilization ratio. The fact that you are maxing out your cards means you are well over the 30% desired ration by your lenders. This can ding your score and cause it to dip lower the longer you use most of your credit.
Buying a big-ticket item on a whim
This starts to become one of the money mistakes to avoid only if you are doing it on a whim. This is because big-ticket items must be planned way ahead of time. You cannot just go out one day and decide that it is a good day to buy a new car, put a down payment on a house, or even for some, buy a new laptop.
Big-ticket items usually the ones that will make the most dent in your finances. This is why you need to plan for it and save for it ahead of time. Impulsively making that purchase decision at the start of the year can leave you with monthly payments more than what you can afford. When that happens, you will start to miss out on some payments and not be able to make ends meet.
There is nothing wrong with making a big-ticket purchase at the start of the year provided it was planned ahead of time. This means you already have the means to pay for it and you will not max out your credit just to buy it. Careful planning is needed before making a big-ticket item purchase to help protect your finances as well.
Competing with people around you
One of the money mistakes you need to stay away from at the top of the year is constantly comparing yourself from people around you. You might see your neighbor pulling up in a brand new car or your officemate coming back from a nice European vacation. NBC News shares that the more you compare, the more negative impact it has on your financial wellbeing.
One reason for this is that you only used to compare yourself with people closest to you. But with the advent of technology, you get to compare yourself with the wealthy 1%. You now think so little of yourself because you cannot get a yacht or even get to ride a jet. You see people enjoying exotic locations and you are stuck in the office in front of the computer.
Next thing you know, you are buying plane tickets and making hotel reservations online just so you can post photos on your social network. You want to have the life of other people that you benchmark your happiness with theirs. You need to be happy with what you have and not think you need what other people have just to be happy.
Missing monthly payments
This is one of the money mistakes you need to avoid early in the year for a number of reasons. The most obvious is that you end up paying more in the end. This is because your lenders can impose penalties and other forms of fees and add them to your payments. This will automatically increase your payment making it a lot harder to catch up.
Missing payments will also negatively affect your credit score. In fact, FICO shares that payment history affects almost 35% of your credit score. This is not something you want at the start of the year. For one thing, it is more challenging to bring up your score compared with deliberately bringing it down. Another is that you will never know when you might need to have that score in top shape so it is better to keep it up all throughout the year.
This is also a financial mistake at the start of the year because missing one payment can affect subsequent payments. There are a number of reasons why you could be late with your payments but same reason can manifest again in the coming months. This will make it a lot harder for you to catch up with your payments. One way you can get ahead of this is to make an extra month or two worth of payments. That way, you are still ahead even if you miss one payment.
Not checking your credit report
Overlooking your credit report is one of the money mistakes you need to address as soon as possible. You have done a lot in the past year and it makes a lot of sense to check your credit score. Did you pay off a debt account last year? Did you aggressively pay down one account? Was there a time you opened up new credit in the past 12 months?
All these need to be reflected correctly in your credit report because this will be the basis of your credit score. One of the best ways to go about it is to get a free copy. The FCRA or Fair Credit Reporting Act gives people the chance to request a free copy of their credit report from nationwide credit reporting companies. You can request one copy from these companies once every 12 months.
One of the reasons why you need to check your report is to make sure that it is accurate. There could be mistakes in the entry which can pull your score down. You have to check every line item to make sure that paid off accounts are taken out and payments you made on time are reflected as such. Checking your report can also give you the chance to catch identity theft early on. If you do not recognize purchases or credit was opened under your name without you knowing about it, call your lender immediately.
Not including your emergency fund in your plans
Another one of the money mistakes you can make early in the year is overlooking the planning needs for your emergency fund. You need to make sure that you allocate resources to ensure you have a strong reserve fund for the year. This will not only alleviate financial stress but give you the ability to stay out of debt when unforeseen circumstances arise.
Money mistakes happen all throughout the year but there are some specific ones you might want to stay away from at the start of the year. These can quickly put your backs against the wall and make the whole year a challenging one for your finances.