Talking dollars and strategies for the money mistakes that nearly everyone makes.
Don’t co-sign on a loan. Don’t spend more than you make. Don’t touch the money in your retirement accounts. Don’t carry too much debt.
These are a few of the warnings we hear repeatedly throughout life as we try to become masters of our money and avoid major pitfalls. And yet, whether we make the smallest mistakes over and over (i.e. impulse buying), or a few catastrophic ones, we often don’t realize the long-term costs of our financial errors. The following is a list (in no particular order) of money mistakes large and small, with estimates of what each could cost you and some ideas to make sure you don’t fall for them:
Getting a Divorce
It isn’t always possible to avoid a divorce; sometimes couple just can’t seem to get along no matter what they try. In the event you find yourself in such undesirable circumstances, it’s important to know what you might be in for financially. Bankrate.com estimates that the average divorce costs between $20,000 and $30,000, most of which is eaten up in lawyer fees that range from $100- $475/hour. Nightmare divorces’ can run as high as $250,000 (or $110 million if you’re a former Beatle).
A lot can be done to minimize the cost, though, especially if it’s more of an amicable split and the finances are simple. Some of the options include formal arbitration, mediation or doing it yourself. Sites like divorce.com offer a variety of options that may only cost a few hundred dollars.
Not Having a Spending Plan
The problem with most people is that they have no idea how much they spend each month, each week or sometimes even on a daily basis. And most budgeting tools only show you how you’re doing after the fact. Financial experts agree that a spending plan can help individuals identify areas of hidden spending; in most cases, at least 10 percent of their income. In other words, without a good spending plan, you’re likely frittering away 10 percent of your annual income on impulsive buys and unplanned purchases.
One company that has pioneered the concept of the online money management spending plan is Finicity, makers of the personal finance software Mvelopes. Finicity uses a modern version of the time-tested envelope method of budgeting, where cash is allocated to various expense categories (gas, utilities, etc.) before it’s ever spent. Spending occurs based on what’s available in each envelope category; if the entertainment envelope is empty, you either have to wait until you get paid again or take money from a different envelope, knowing you’ll have less to spend in the second envelope as a result. The result is that every dollar has a name and a place before it ever gets spent, so you always know what’s available to spend, making it much easier to stay within budget.
Not Backing up Important Information
Nowadays much, if not all, of our personal information resides on our computers – tax information, loan information, family photographs and videos, usernames and passwords, etc. Lots of things that would be difficult or impossible to replace if lost. A recent survey by Harris Interactive found that more than 35 percent of adults in the US don’t back up their sensitive information at all. Of those who do, nearly 75 percent don’t do it often enough. The cost? Besides the headache and hassle of trying to recover data, recovery fees can often run more than $1000. Plus, there’s no guarantee the information will ever be fully recovered.
The most obvious solution is to back up your files regularly, but to help there are a number of external hard drives that have a “one-touch back up” feature, which makes the process incredibly convenient.
Retiring too Early
According to the Consumer Reports Money Labs, this little move could cost you anywhere from $237,000 to $309,000, depending on your circumstances. Some of the reasons: by retiring early, you’ll be missing out on potential income that would have come from the best-paid years of your career. Also, since you can’t qualify for Medicare until you’re 65, you may end up shelling out for ultra expensive insure.
In their example, Consumer Reports posed the case of a hypothetical worker with an income of $54,592, who quit working at 62 (the first year he could collect Social Security). He lost out on 4 years of income ($221, 665), $403/month in social security benefits, and insurance premiums that cost him anywhere from $6,501 to $44,985 over three years. Assuming good health, it’s advantageous to try and wait until full retirement age.
Swimming in Credit-Card Debt
It seems the horror stories of how much only paying the minimum balance will really cost have done nothing to lessen our appetite for plastic. But if the idea of taking more than 20 years to pay a $5,000 debt (15 percent APR) and accruing more than that amount in interest does frighten you, read on. The Federal Reserve claims that more than 45 percent of consumers carry an average credit-card balance of $2,200. 15 percent carry more than $10,000. It’s not easy to give up the plastic, but it is possible to use it less frequently. Another strategy is to write one of your financial goals on a post-it note (i.e. saving for a vacation) and tape it to the front of your credit cards. That way, you’ll be reminded of what you really want each time you’re tempted to spend.
The Big Picture
Add up just the financial blunders from this list and you’ll be well into the hundreds of thousands of dollars. And while there’s a seemingly endless list of money mistakes that can be made, some research, simple planning and common sense are all that’s needed to avoid most pitfalls and enjoy your money.
Finally and in conclusion – Some of the amazing tools and services that Finicty offers is an award-winning household budgeting software using the time-tested envelope budget system taken from the physical envelope budgeting systems of old. Using This home budget software tool will help you reach your personal finance goals and there is no other home budgeting software like it on the market. Couple this with Finicity’s powerful personal finance community and you’ll learn how to begin enjoying your money.
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