A few years ago when I first downloaded a banking app onto my smartphone, I felt even more strongly than before about the fact that my money had become virtual and abstract. I realized that because it was just a number on a screen, it was so much easier to spend $20 than if I was handing out the cash physically when purchasing a product. That realization shook me awake to why my finances always felt out of my control – it was because I was making these small mistakes every day.
Not Saving Enough For Retirement
The younger you are, the less likely it would be that you have dedicated a significant amount of thought to retirement just based on how far away it appears. But consider that people live a long time nowadays, and based on average life expectancies in the United States, you’ll probably have anywhere from a good ten to twenty years at least after retirement. That’s a long time to go without any stored funds or income.
Being Lazy When Calculating Tax Breaks and Deductions
I get it – you don’t like doing the math and you want your taxes to be done as quickly as possible. But, there’s apparently about $1.2 trillion in unclaimed and overlooked tax deductions that the U.S. government happily receives from the general population. Try thinking of it from the perspective that someone is paying you thousands of dollars to be a little more meticulous with reporting your tax returns the next time you file your taxes.
Paying for Convenience
The convenience fee explains almost every case of an unfairly priced item. Such fees are tacked onto things like Uber rides, popcorn at movie theaters, soda machines, and express overnight shipping. A report from TheStreet reveals that such convenience fees are biased to take advantage of the psychological situation: “Kathleen Burns Kingsbury, who owns the consulting company KBK Wealth Connection, points out that many convenience charges, such as a $2 ATM fee that saves you a seven-block walk to the nearest bank branch, are priced to take advantage of that psychology.”
Eating Out Too Often
To me, eating out arguably falls under the category of convenience too, but its costs are great enough to warrant a separate reminder. Eating out refers to when you are spending money on drinks at a bar, getting food delivered, or going out with your friends to a fancy restaurant. On a per meal basis, you get food that’s less healthy and that costs almost twice as much ($12.5 in comparison to $6.5) if you eat out instead of making your own food.
Sacrificing Your Savings to Cover Urgent Debts
I mean your illiquid savings and assets in this case such as your 401(k) or a CD. If you find yourself needing to pay off an urgent debt, it’s best not to reach into your 401(k) for the obvious reasons that you will get a penalty and because it means you’re burning your retirement funds. Also the option to borrow money using your 401(k) plan through a loan and pay yourself back instead of dipping into the funds directly is often ignored, with data from the Employee Benefit Research Institute showing that only about 20% of people who were eligible for these 401(k) based loans took advantage of the privilege.
Before you make any decisions to dip into your retirement-related savings, consulting a credit score calculator to determine how much money you can leverage on credit is a good stopgap you should exhaust first.
Not Preparing for Emergencies
About six in ten Americans are unprepared to cover an unexpected emergency costing $500. It’s easy to overestimate how much you really need to spend and underestimate how much you want to leave for savings in the moment – make sure you set aside the money to compensate for emergencies. You never know when you’ll be struck with unemployment or a serious health issue such as an injury.
Why do the math if the bank does it for you anyway, right? That’s actually a very dangerous mindset to fall into because it leads to financial blindness and ignorance in a number of important situations. When you think about the money you’ll need for buying a house, a car, and having a wedding that will leave a lasting impression, you’ll quickly discover that a budget is needed if you want to complete any big life milestones without going into significant debt.
$15,609. That’s the average amount of debt among indebted households, and not budgeting and keeping track of where your money is going is one of the fastest ways to get there.
A fun new growth hack that has been emerging for college students is exploring internships abroad. By interning in another country, students are saving thousands while still being able to explore the world.
Not Having Insurance
A lot of people like taking up the contrarian mentality of “Why get health insurance when I can be in control of my health for the next few years?” in refusing to pay for insurance. About one in ten people are uninsured among the population of nonelderly Americans for this reason, according to the Kaiser Family Foundation. The same report notes that around half of the uninsured population opts out because they believe that the insurance policy is too expensive, but having an unexpected health development or injury will be even more unaffordable should it happen.
Not Making Investments and Sitting on Your Income
Let’s face it, we all know that not putting your money to work and having it sit in a savings accounts means that your money will lose purchasing power. The whole premise of banks is founded on the idea that you’ll keep your money in one place for a long time so the bank can go out and make investments with it and profit in the time that you do nothing with it. You might not trust market fluctuations or your own expertise with regards to stocks, but there are plenty of investments types that give much more return than a savings account such as a mutual fund. In fact, the Investment Company Institute reports that “In 2014, an estimated 53.2 million households, or 43.3 percent of all U.S. households, owned mutual funds. The current estimate of the number of individual investors owning mutual funds is 90.4 million.“