When it comes to money, we all have to have it, and we all have our blind spots, too. There are so many money mistakes I make in a month that it’s almost embarrassing, but if I’m making money errors, I know other people are too — and it’s about time we talked about them!
If you open your wallet and moths fly out, consider these little-known money traps and ask yourself if they’re having an effect on your cash flow.
1. Considering your budget one and done
If you’re just getting started with budgeting, or you’ve been budgeting a while and hate it, you may not realize that you’re not giving your budget the full love and attention it deserves. It’s easy to just make a budget and put it aside and never look at it again, no matter how much time has passed or how much your life and the economy has changed.
Instead, you need to treat your budget like it’s dynamic and subject to change. By keeping tabs on all your spending, tracking all your receipts, seeing what categories are getting higher, or lower, and where you might be able to rein things in a bit, you’re treating your budget like a living thing, and catching problems early before they get out of hand.
For example, Americans frequently fall into the subscription trap. It’s easy to do. You see a free trial for Hulu or HBO and you sign up, telling yourself you’ll cancel before the trial is over. But maybe you have a show that you really like, and you decide to keep it. And then you do it again and again, and before you know it, you’ve spent an average of $200 per month in subscriptions alone and don’t even realize it.
By monitoring your transactions, comparing them to your budget, and continuously updating that little contract with yourself to reflect the realities of living, you’ll avoid a lot of money pitfalls all at once.
2. Impulse. Spending.
Although impulse spending is down this year, it’s still an enormous problem in the United States. On average, people spend $151 per month on impulse purchases. That can really eat into your paycheck!
For people like me, who absolutely love to find a new snack at the market, or delight in a small purchase from an ad on social media, it’s extra important to stick to your spending plan. If you’re at the market, have a list and don’t deviate from it. If you’re at home on your computer or your phone, put that impulse buy in a shopping cart and let it sit for a week before you go back to it.
Curbing impulse spending last year really changed my entire personal finance landscape, no lies. I’ve been able to start saving again, even though my budget has been taxed by other forces that are a lot less fun than impulse buying a cute pair of shoes from Facebook.
3. Borrowing for emergencies when you have savings
Many Americans have no savings to begin with, which is understandable given all the factors that are in the way of some people’s financial health. But for those who do, many choose to not spend the money they have, even in times of massive trouble, and that’s a problem for their wallets.
What are Americans doing instead of using emergency savings for emergencies? They’re putting their problems on credit cards, which creates a whole new problem for them, frankly.
According to a recent survey, only 22% of Americans said they had no emergency savings whatsoever, but 56% said they’d not use their savings accounts for emergencies over $1,000. Instead, almost half of those non-savings users would borrow it from a lender: 21% would pay from a credit card, 4% would take out a personal loan. Another 10% would borrow from friends or family.
If you’re in the borrowing for emergencies category, that can cost you a load of money. How much will depend on your credit card or loan rate. If you have the savings to pay for a problem, there are few worlds in which your savings account interest rate is higher than your credit card interest.
Instead of making payments to the bank, treat that expense like you would if it was owed to someone else and make payments back to your savings account monthly. You’ll come out way ahead when compounding interest isn’t beating down the door.
Money traps will drain you dry
Rooting out waste in your household budget and controlling your spending is no fun. Trust me, I know all about it. It’s dullsville, man. But, if you hope to ever have any savings for fun things, or to retire one day, it’s important to watch out for these kinds of pitfalls.
We’re all drowning in a sea of commercialism, and it’s easy to just throw caution to the wind and try to wing it, but it’s more important than ever before that we don’t. If we buy every bauble, subscribe to every channel, and spend money we don’t have to on emergencies, well, it all adds up.
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