The 6 Deadly Sins of Personal Finance





Personal finance leaves so much for debate. Some lean heavily on investments for the future. Some clip coupons and squirrel away every extra penny into a single savings account. Some ignore the household budget completely, and just hope for the best.

Whatever your finance style, there's probably room for improvement. Some budget snafus won't lead to an outright disaster. But some mistakes can hurt you now, and even more as the years go by.

Here are the 6 Deadly Sins of personal finance, and how to repent:

Emergency Savings Shouldn't be Optional

You should be saving every month, but toward what? Sarah Kaufman, for Motley Fool, lists no emergency fund as the #1 financial mistake. Emergency savings can be the difference between staying afloat or sinking under if a crisis hits.

Emergencies come in all shapes and sizes. It could be a job loss, a medical emergency where insurance doesn't pay 100%, or even an unforeseen legal issue where representation costs thousands of dollars. Start an emergency savings fund now, if you haven't already.

Minimum Monthly Payments Equal Treading Water

The minimum monthly payment is just that -- the bare minimum. Minimums are not designed to help you make progress. They do, however, provide the company you owe with a tremendous amount of profit in the form of interest.

Whenever possible, pay more than the minimum required. This applies to your mortgage, credit cards, and any other debt that you'd rather leave behind. Check for prepay penalties, which some mortgages have. And don't forget to earmark the extra you pay each month so it will apply toward the principal. Otherwise, it might just go toward interest or the next month's minimum payment.

The Credit Conundrum

You'll read a lot of advice about avoiding debt, and getting out from under the debt you already have. But credit is also a good thing. The important part is striking a balance, suggests Kaufman.

While no credit means you have no debt, it also means you have no credit history. No credit history means your credit score might be just as poor as someone with excessive debt and years of late payments. Aim for some credit that you manage well. Low-balance credit cards and timely payments will set you up for a better interest rate on the things you'll need to finance, such as a house or vehicle.

Retirement Needs Time to Grow

Retirement can seem like it's years and years away. In fact it might be, and that's a good thing. You need years and years to save if you want to live comfortably when the time comes.

Retirement savings can't happen overnight, unless you inherit a windfall or win the lottery. Every month of that long stretch from where you might be standing now to the day you clock out of work for the last time is important. Start retirement savings as soon as possible, and make regular contributions.

Don't Fly by the Seat of Your Pants

For whatever reason, many people just do not have a budget. Maybe you're financially stable and think budgets are for people with money problems. Maybe you earn so little that the idea of a budget is laughable. Neither is really true.

A budget helps everyone, regardless of income. For people with a comfortable living, a budget can help reveal avenues for saving more money, and can even help pay off those traditionally mandatory lifetime debts, such as a mortgage. For people with a meager income, a budget can help reduce debt and slowly make progress toward stability.

What's Really Necessary?

It's not always easy to decide what's mandatory and what's not. Discretionary expenses are non-essentials, and can sink an otherwise perfectly decent income.

From specialty coffee and too many new shoes to redecorating out of boredom and going overboard for gifts, the difference between what's essential and what's not is always a personal choice. The stricter you can be while still allowing room for fun, the more money you will have for the future.

A perfect budget is a rare thing, indeed. There is no absolute universal ideal; the best you can do is be proactive and always work to improve. Luckily, Mint.com is there to help.

With Mint's personal finance software, you can turn your home computer, tablet, and smartphone into a budget hub, and always know what your money is up to. Left to its own devices, it might very well get into mischief.

Sign up for your free account today, and your future could hold fewer financial transgressions.


Google+