The following is a guest post.
You may fancy yourself as someone who is an expert on personal finance. But even the most savvy among us make simple money mistakes now and then. Here are a few of the most common and how to avoid them.
Stupid Money Mistakes
One of the most stupid money mistakes but one of the ones most people make, is paying interest on credit cards.
Credit cards aren’t a good source for a loan. The interest rate on most credit cards is from 15 to 20 percent, about three to four times the interest rate you pay on a mortgage or car loan.
Paying that kind of interest is just plain dumb. Use your credit cards only as a convenience to buy things you could otherwise afford. Pay your bill in full and on time each month to avoid finance charges and build your credit score.
Another stupid money mistake that most people make is not getting the best rates on loans and investments.
Just because you have a checking account with one bank doesn’t mean you have to do all your banking there. Online banks and credit unions often have better rates on savings accounts, CDs and loans than brick-and-mortar banks.
A stupid money mistake that most people make but don’t realize is failing to negotiate prices. Of course, everyone knows you can negotiate the price of a house or car, but there are many other products and services on which you can negotiate.
For example, many stores have an unspoken rule that you can negotiate price. Furniture stores and appliance stores often negotiate on price. You may even be able to do this on clothing and accessories.
Failing to budget or not budgeting correctly is another money mistake that most people make without realizing it. You may even think you are budgeting because you keep track of your housing, groceries and utility costs.
But there are other expenses people never even think about: haircuts, gym memberships, car maintenance costs and money spent on entertainment.
Even if you do budget correctly, you may underestimate. Studies have shown that people who budget monthly rather than annually underestimate their expenses by 40 percent.
Spending too much money on housing is a simple money mistake that many people make. Most experts say you can comfortably spend one-third of your income on housing.
However, those experts don’t take into account things such as childcare costs, student loan payments or alimony. If you have a lot of obligations, you may not be able to afford to spend this much for housing.
Failing to save money may be one of the biggest money mistakes most people make. Whether it’s for an emergency fund, retirement or a college fund for your kids, you need to pay yourself first.
If you have a 401(k) plan at work that offers matching funds, make sure to contribute the minimum needed to get the full match.
You also should try to keep three to six months’ worth of expenses in a savings account as an emergency fund.