Everybody makes mistakes with their money. The important thing is to keep them to a minimum. And one of the best ways
to accomplish that is to learn from the mistakes of others. Here is our list of the top mistakes people
make with their money, and what you can do to avoid these mistakes in the first place.
1. Buying items you don't need...and paying extra for them in interest. Every time you have an urge to do a little
"impulse buying" and you use your credit card but you don't pay in full by the due date, you could be paying
interest on that purchase for months or years to come. Spending money for something you really don't need can
be a big waste of your money. But you can make the matter worse, a lot worse, by putting the purchase on a credit
card and paying monthly interest charges.
Research major purchases and comparison shop before you buy. Ask yourself if you really need the item. Even better,
wait a day or two, or just a few hours, to think things over rather than making a quick and costly decision you may
come to regret.
There are good reasons to pay for major purchases with a credit card, such as extra protections if you have problems
with the items. But if you charge a purchase with a credit card instead of paying by cash, check or debit card
(which automatically deducts the money from your bank account), be smart about how you repay. For example, take
advantage of offers of "zero-percent interest" on credit card purchases for a certain number of months
(but understand when and how interest charges could begin).
And, pay the entire balance on your credit card or as much as you can to avoid or minimize interest charges,
which can add up significantly.
If you pay only the minimum amount due on your credit card, you may end up paying more in interest charges
than what the item cost you to begin with.
Example: If you pay only the minimum payment due on a $1,000 computer, let's say it's about $20 a month,
your total cost at an Annual Percentage Rate of more than 18 percent can be close to $3,000, and it will
take you nearly 19 years to pay it off.
2. Getting too deeply in debt. Being able to borrow allows us to buy clothes or computers, take a vacation or
purchase a home or a car. But taking on too much debt can be a problem, and each year millions of adults of
all ages find themselves struggling to pay their loans, credit cards and other bills.
3. Learn to be a good money manager. Also
recognize the warning signs of a serious debt problem. These may include borrowing money to make payments on
loans you already have, deliberately paying bills late, and putting off doctor visits or other important
activities because you think you don't have enough money.
If you believe you're experiencing debt overload, take corrective measures. For example, try to pay off your
highest interest rate loans (usually your credit cards) as soon as possible, even if you have higher balances
on other loans. For new purchases, instead of using your credit card, try paying with cash, a check or a debit card.
There are also reliable credit counselors you can turn to for help at little or no cost.
Unfortunately, you also need to be aware that there are scams masquerading as 'credit repair
clinics' and other companies, such as 'debt consolidators', that may charge big fees for unfulfilled promises or
services you can perform on your own.
4. Paying bills late or otherwise tarnishing your reputation. Companies called credit bureaus prepare credit reports
for use by lenders, employers, insurance companies, landlords and others who need to know someone's financial
reliability, based largely on each person's track record paying bills and debts. Credit bureaus, lenders and other
companies also produce "credit scores" that attempt to summarize and evaluate a person's credit record using a
While one or two late payments on your loans or other regular commitments (such as rent or phone bills) over a
long period may not seriously damage your credit record, making a habit of it will count against you. Over time
you could be charged a higher interest rate on your credit card or a loan that you really want and need. You could
be turned down for a job or an apartment. It could cost you extra when you apply for auto insurance. Your credit
record will also be damaged by a bankruptcy filing or a court order to pay money as a result of a lawsuit.
So, pay your monthly bills on time. Also, periodically review your credit reports from to make sure their information accurately reflects the accounts
5. Having too many credit cards. Two to four cards (including any from department stores, oil companies and other retailers)
is the right number for most adults. Why not more cards?
The more credit cards you carry, the more inclined you may be to use them for costly impulse buying. In addition, each
card you own — even the ones you don't use — represents money that you could borrow up to the card's spending limit. If
you apply for new credit you will be seen as someone who, in theory, could get much deeper in debt and you may only
qualify for a smaller or costlier loan.
Also be aware that card companies aggressively market their products on college campuses, at concerts, ball games or
other events often attended by young adults. Their offers may seem tempting and even harmless — perhaps a free T-shirt or
Frisbee, or 10 percent off your first purchase if you just fill out an application for a new card — but you've got to
consider the possible consequences we've just described. Don't sign up for a credit card just to get a great-looking
T-shirt. You may be better off buying that shirt at the store for $14.95 and saving yourself the potential
costs and troubles from that extra card.
6. Not watching your expenses. It's very easy to overspend in some areas and take away from other priorities, including your
long-term savings. Our suggestion is to try any system — ranging from a computer-based budget program to
hand-written notes — that will help you keep track of your spending each month and enable you to set and stick to
limits you consider appropriate. A budget doesn't have to be complicated, intimidating or painful — just something
that works for you in getting a handle on your spending.
7. Not saving for your future. We know it can be tough to scrape together enough money to pay for a place to live, a car
and other expenses each month. But experts say it's also important for young people to save money for their long-term
goals, too, including perhaps buying a home, owning a business or saving for your retirement (even though it may be 40 or
50 years away).
Start by "paying yourself first". That means even before you pay your bills each month you should put money into savings
for your future. Often the simplest way is to arrange with your bank or employer to automatically transfer a certain
amount each month to a savings account or to purchase a Savings Bond or an investment, such as a mutual fund that
buys stocks and bonds.
Even if you start with just $25 or $50 a month you'll be significantly closer to your goal. The important thing is to
start saving as early as you can — even saving for your retirement when that seems light-years away — so you can benefit
from the effect of compound interest. Compound interest refers to when an investment earns interest, and later that combined amount earns
more interest, and on and on until a much larger sum of money is the result after many years.
Banking institutions pay interest on savings accounts that they offer. However, bank deposits aren't the only way to make
your money grow. Investments, which include stocks, bonds and mutual funds, can be attractive alternatives to bank deposits
because they often provide a higher rate of return over long periods, but remember that there is the potential for a
temporary or permanent loss in value.
8. Paying too much in fees. Whenever possible, use your own financial institution's automated teller machines or the ATMs
owned by financial institutions that don't charge fees to non-customers. You can pay $1 to $4 in fees if you get cash from
an ATM that isn't owned by your financial institution or isn't part of an ATM "network" that your bank belongs to.
Try not to "bounce" checks — that is, writing checks for more money than you have in your account, which can trigger
fees from your financial institution (about $15 to $30 for each check) and from merchants. The best precaution is to
keep your checkbook up to date and closely monitor your balance, which is easier to do with online and telephone banking.
Remember to record your debit card transactions from ATMs and merchants so that you will be
sure to have enough money in your account when those withdrawals are processed by you bank.
Financial institutions also offer "overdraft protection" services that can help you avoid the embarrassment and
inconvenience of having a check returned to a merchant. But be careful before signing up because these programs come with
their own costs. Whenever possible, use your own financial institution's automated teller machines or the ATMs owned by
institutions that don't charge fees to non-customers.
Pay off your credit card balance each month, if possible, so you can avoid or minimize interest charges. Also send in your
payment on time to avoid additional fees. If you don't expect to pay your credit card bill in full most months, consider
using a card with a low interest rate and a generous "grace period" (the number of days before the card company starts
charging you interest on new purchases).
9. Not taking responsibility for your finances. Do a little comparison shopping to find accounts that match your needs at the
right cost. Be sure to review your bills and bank statements as soon as possible after they arrive or monitor your accounts
periodically online or by telephone. You want to make sure there are no errors, unauthorized charges or indications that a
thief is using your identity to commit fraud.
Keep copies of any contracts or other documents that describe your bank accounts, so you can refer to them in a dispute.
Also remember that the quickest way to fix a problem usually is to work directly with your bank or other service provider.