10 Money Management Mistakes That Can Hurt You

10 Money Management Mistakes That Can Hurt You

Money management doesn't have to be complicated, and you don't have to understand what derivatives and hedge funds are to have a financially comfortable life. Much of what constitutes sound money management has to do with common sense, and many good money management practices can be adopted with relative ease. Here are 10 money management mistakes that can hurt you, and how to avoid them.

1. Lifestyle Inflation

Say you get a 10% raise. Your may unthinkingly "improve" your lifestyle by 10%, whatever that means to you. Maybe you start eating 10% more meals out, or buy 10% more console games. Resisting this urge is one of the smartest things you can do, particularly if you have big goals like buying a house, paying off a car loan, or putting kids through college.

2. Stopping Retirement Contributions When Times Are Tough

When a partner loses a job, or when a major unexpected expense comes up, it can be very tempting to stop retirement contributions to cope with increased financial demands. But this should be a last resort, after trying to reallocate resources in other ways, like by taking on extra work shifts, cutting expenses, or parking the nice car in favor of the cheaper-to-run "beater" car.

3. Paying Bills Late

There are all sorts of ways to avoid paying bills late. Automatic bill payment is an option, as is "budget billing" for utilities. You can also have your phone's calendar alert you a few days before bills are due. Easy-to-use budget apps like Mint can send text alerts for bills and also make tracking bill payments a snap.

4. Paying Unnecessary Bank Fees

Avoiding out-of-network ATMs and paying credit card bills on time helps you avoid paying unnecessary fees. And if you use a fee-happy bank, reconsider your options. Often, local banks and credit unions offer much better terms for checking and savings, and some even have perks like refunding out-of-network ATM fees.

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5. Putting Everyone Else First

Being a good person is important, but it shouldn't compromise your long term financial health. Neglecting to save for retirement in order to help out adult children, putting off important, non-emergency health expenditures (like replacing a lost filling), or only putting money into savings after you've taken care of everyone else can eventually put your financial standing in jeopardy.

6. Not Taking Advantage of 401K Matching

Does your employer match some of your 401K contributions? That's free money, and not taking advantage of it is a big mistake. Say your company gives a 50% match up to a 6% contribution. That means if you commit to putting 6% of your salary in your 401K, your company will throw in 3% of your salary. Don't walk away from an opportunity like that.

7. Choosing a Non-Ideal Student Loan Repayment Program

Think twice before choosing a graduated repayment program, where payments start small and increase every other year. With this type of repayment, the first few years only repay interest and don't decrease the principal of the loans. It's not easy to make standard student loan payments early in your career, but by not choosing graduated repayment, you'll make it easier to achieve major financial goals like buying a house.

8. Having the Wrong Life Insurance

When you have dependents, having life insurance is important, but it should be the right type of policy. A term insurance policy for seven to 10 times your salary is a cost-effective way to provide coverage for children for as long as they are dependent on you. Insurance agents may try to sell you a more expensive whole life policy, but these are not always best for young parents with lots of expenses.

9. Not Having an Emergency Fund

It may not be fun to skim part of every paycheck right off the top for emergency savings. And it's not fun to put little windfalls into an emergency account either. But it's definitely not fun to cope with a major car repair, a medical expense, or other financial emergency with credit cards, borrowing from friends and family, or taking out an ill-advised high interest loan.

10. Not Having a Budget

If you don't have a budget, you don't know what's coming in and what's going out, and you can't see where you're overspending. Today's budget apps like Mint are incredibly easy to use and link your accounts with your personal computer and smartphone, so your budget is portable and always available. And when budget apps are this easy to use and offer so much, not having one can be a serious money management misstep.

Start now: Get budgeting software from Mint to help prevent money management mistakes. Click to get started.