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If you take a look at your spending, are you really being as smart as possible? It may seem like it at first glance, but if you really sit down and think about it, you may be actually making mistakes with your finances and not even realize it. This can mean you’re overspending or missing opportunities to save. Here’s a list of mistakes you might be making, and the changes you can make.

1. Not Having a Budget

A written budget can be the key to managing your money. A budget puts financial control back in your life. Otherwise, your money just goes and you can lose control over your finances.

I know it can seem scary to actually sit down and make a budget, but it really is not that bad. In fact, once you do it and start to follow one, you will realize how much better you feel about your money.

If you need help getting started, you can read about how to create a budget here. 

2. Not Being Involved in Your Finances

If you are in a relationship (married or otherwise) where you both contribute financially, are you both involved in paying the bills? In most cases, it seems that just one person takes care of this. There are instances where it is the person who is better at handling money (and/or maybe enjoys it). But really, to have a full understanding of your money, you both should be involved.

Consider sitting down together and talking about your budget (see point 1). Fill it out together so you both see how you plan to spend your money. You can both contribute to how you will save, what you will budget for dining out or other items you want to spend your money on. You both have an equal voice. You both are in control of your money.

Once you have the budget, look at your investments, credit cards, life insurance — anything with any sort of financial tie. Make sure you both understand where these items are held, be it a bank or insurance company, and that you both know how to access the account (login and passwords).

3. Not Saving for Retirement

Too many parents focus more on college than retirement. Sure, we’d love to help our children financially with college, but it’s important to consider your future as well. It is up to you to take the steps now to ensure that you are looking ahead to take care of yourself for the future.

Consider looking at the options your employer offers. Do they have a 401K plan? Do they have a matching program? Start saving now and look ahead toward covering yourself for those golden years.

4. Using Credit the Wrong Way

Many people are wise when it comes to using credit cards. They use them and pay the card off completely every single month. If you are one of these people, that’s what we should all aspire to. The problem is when you’re not careful to understand the fine print. The low introductory rate or the in-store discount can very tempting, but will only be worth it if you can afford what you charge.

Take a look at this example: You open a store card to save 20% off of your purchase that day and end up spending $400. The bill comes and you open it. You see that the interest rate is 18.9% and that the minimum payment is only $16. Rather than pay the entire $400 out of your account, you decide to send in the minimum balance because you need the $384 for something else.

If you continue to do this, it could take you nearly 3 years (34 months) to pay off this balance. Not only that, but you could accumulate more than $120 in interest on this charge alone, making your $400 purchase ultimately cost more than $520. Keep in mind — while only paying the minimum isn’t ideal, it is better to make that payment on time than to not pay at all.

You can see how your financial habits are affecting your credit scores by taking a look at your free credit report summary, updated every 14 days, on Credit.com.

5. Listening to the Bank Instead of Your Budget

If you want a new home or car (or anything that requires a loan), you will go to the bank. Consider this scenario — You fill out an application for pre-approval and find out that they tell you that you can afford a $300,000 home with an interest rate of 3.76%. Your monthly payment will be $1,391.05.

While that looks like it will work, according to the numbers, you know that will really stretch things thin. However, the bigger house with that huge master tub and large backyard is so wonderful. The neighborhood is upscale and it is everything you want. But is it what you can really afford? (Consider using this tool to get a better understanding of how much house you can afford.)

You take a look at your budget and decide you really should spend only $900 a month instead. That would mean you should not spend more than around $200,000 for a home ($100,000 less than what the bank says you can afford).

By spending less, you have freed up money to allow you to do things other than pay for your home. If you find yourself in this situation, it might be wise to consider downsizing or maybe trying to refinance at a lower rate to reduce the amount you are paying each month on your mortgage.

6. Not Doing Research Before Shopping

It is easy for us to overspend on things such as home repairs, clothing and gifts, as emotion is driving us on many of these purchases. If the refrigerator goes out, we worry and know we have to get it fixed as quickly as possible. That may result in paying more than necessary.

Instead, it’s a good idea to shop around and do your research. You may even want to do so before the unexpected happens. In the instance of an appliance repair, make some calls to find out the rates of various companies that repair the items you have in your home. Find out who does good work at an affordable price. Then, write down that name and number so that when you need someone, you will know who to call.

You can also look around for deals and the best prices on other items such as clothes and gifts. By taking a few extra minutes to do some research online, you might find a better price at another store.

7. Not Teaching Your Children About Money

Kids take in everything they witness and hear around them. This can lead to them learning great things, but also not so great things. You want your kids to be smart in all areas of their lives as they get older. This includes their finances.

It’s good to start educating them at a young age. When my kids go to the store, they know that we can’t just buy anything. We talk about our budget with them and tell them we have only a certain amount of money to spend on food, so we have to first cover the items we need and then we may be able to pick up that splurge item.

We also teach them financial responsibility. It is important that you start young with your children so that they understand the concept of how to manage their own money. Teach them about giving, saving and spending. By starting young, you set them on the path to financial independence as they get older.

8. Not Planning for an Unexpected Loss

None of us ever plan on losing a spouse or something happening to them that can prompt financial hardships. But, the reality is that it can happen. It is important to plan now so that you are ready just in case. To do this, consider sitting down with your spouse or partner and having a candid discussion. Ask yourselves these questions:

  • Who will raise our children if we are both gone?
  • How much money will my spouse need should I pass away?
  • How will we cover a funeral and/or medical expenses?
  • What happens if I become disabled and can no longer work?

Use this to figure out what your emergency fund should entail. Look at your budget and determine what could be cut back if you were out of work (things such as entertainment and dining out may have to be put on the back burner). It’s also wise to add in the additional cost of health insurance premiums (if you get this through your employer). Then, work hard to try to build up your emergency fund so you can support yourself and your family, should you find yourself (or your spouse) out of work.

From there, you may want to make other considerations, like life insurance or disability insurance. Check with your employer as they may offer some supplemental benefits as well as some sort of disability insurance at a reduced premium rate. You can read more tips to help you plan for the unexpected here.

9. Not Having a Debt Payoff Plan

If you currently find yourself in debt, it’s a good idea to have a plan to pay it off.  These are some simple things to keep in mind with any debt plan:

  1. Figure out your monthly payments to get the debts paid down.
  2. Set a deadline to getting out of debt.
  3. Put it all in writing and do your best to stick to it.

(If you are currently working to pay off your credit card debt, consider using this credit card payoff calculator tool to see how long it may take you.)

10. Ignoring Your Finances Completely

The truth is, ignoring your problems does not make them go away. The same holds true with your finances. If you are ignoring them, things will not improve.

If you find you are in over your head, check with your bank. Some of them offer free assistance to anyone who wants to get out of debt. They might even have financial planners available to assist you. You never know what services are out there unless you ask.

It is not how much you make that matters, it is what you do with it. Making wise financial decisions can keep you from throwing money away and help you gain more control.

Image: gpointstudio

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