Whether you consider yourself to be financially savvy or a finance novice, you can always benefit from a few money management tips. Only about 40% of Americans feel in control of their finances, according to Prosper’s Financial Wellness survey. Having better control of your day-to-day and month-to-month finances means you’re better able to absorb bumps in the road, make progress toward your financial goals and, ultimately, have the financial freedom to make choices to enjoy life.
We all make mistakes on the path to achieving financial well-being — but the good news is, it’s not too late to fix many of these slip-ups. Here are 5 common money mistakes you might be making right now, and the money management tips you can follow to correct them.
Falling behind on your payments
The problem: It’s no secret that staying on top of your payments is a primary money management tip. Whether it’s rent, utility bills, or credit card balances, falling behind on your payments is problematic for several reasons. First, you’ll likely wind up paying late fees and other charges. Second, late payments may cause your interest rates to rise, which means you’ll pay more on future charges. Lastly, some companies report late payments to the major credit bureaus, and your tardy payments will be stuck on your credit report for seven years.
Money management tip #1: If you currently have past-due payments, catch up on them ASAP. The longer a payment is late, the more negative the impact. Next, honestly address the issues that caused you to fall behind. If you have trouble keeping track of due dates, consider enrolling in automatic payments or setting up calendar reminders. If your payments are late because you’re short on funds, an effective budget can help you manage expenses and curb overspending.
Not having a solid emergency fund
The problem: Most Americans don’t have enough savings to cover a $1,000 emergency, such as a ruptured water heater, urgent car repair or trip to the hospital. If you aren’t able to cover an unexpected expense with your savings, you have to turn to other options. This may mean borrowing from family or friends, reducing spending elsewhere, or turning to a high interest-rate credit card. All of these can create additional stress and expenses.
Money management tip #2: Experts recommend contributing to your emergency fund on a regular basis. For many, this means carving out a portion of each paycheck for your emergency savings account. Ideally, this is done with direct deposit, so you won’t forget or be tempted to spend the funds. To figure out how much you need to save, calculate how much money you would need to cover three to six months’ worth of household expenses. That amount should be readily available in your emergency fund at all times.
Having a sloppy budget (or no budget at all)
The problem: A budget is an essential tool for achieving financial well-being. It helps you work toward your financial goals, like buying a house, paying down debt or going on a dream vacation. However, a budget is only as good as the effort you put into it. If you created a budget last year but never bother to track your day-to-day income and expenses, your budget isn’t as powerful as it could be. Or, if your budget leaves out easily overlooked expenses (such as annual car registration fees and holiday gifts), it won’t be as effective as it could be. Lastly, an unrealistic budget won’t do you any good. For example, it never allows for dining out or the occasional shopping trip, it will be impossible to stick to and you may end up ignoring it altogether.
Money management tip #3: Ask any financial manager or expert about money management tips, and you’ll probably hear that creating and maintaining a budget is at the top of the list. Set aside time to work on strengthening your budget. This could mean a few minutes each weekend recording expenses plus monthly sit-downs with your family to discuss big-picture plans. You can also take advantage of apps and online programs that automatically capture your spending and help with the math.
Ignoring your credit report
The problem: “Out of sight, out of mind” is a dangerous mantra to apply to your credit profile. Lenders check your credit report as they determine whether they’re willing to let you borrow money, and on what terms. Landlords and potential employers can check your credit report, too. If there’s an ugly surprise or error on your report, it can seriously impact your financial life. You might be forced to pay high interest rates or be denied a loan altogether.
Money management tip #4: Regularly monitor your credit report. You actually have multiple credit reports — one from each of the major reporting bureaus: Equifax, Experian and TransUnion. You are legally entitled to a free copy of your credit report every 12 months from each of the three bureaus. You can request them from AnnualCreditReport.com. Carefully review your reports for errors or inconsistencies. Common errors include incorrectly reported balances, closed accounts reported as open, and incorrect identity information.
If you spot a problem, begin the dispute process as soon as possible by contacting the credit reporting bureau. You can also use free online tools, such as Credit Karma, to check your credit scores, which are based on your credit reports. If you want to follow any of these money management tips, make monitoring your credit score one of them. Your credit score is an important aspect of your financial life and affects your ability to take out loans and make large purchases in the future.
Not having a plan to manage your debt
The problem: Debt doesn’t need to be an enemy — it just needs to be well-managed. If you don’t have a plan, you might slip into the habit of making minimum payments on your credit cards, which can be quite costly. Or, you might end up hurting your credit utilization ratio by needlessly maxing out your credit cards. Lastly, if you don’t have a plan in place to build a healthy credit profile, you may find it difficult to get a loan.
Money management tip #5: Establish your goals and pick the right plan. If, for example, your goal is to pay down high interest-rate credit card debt, you may consider a personal loan for debt consolidation (a way to combine multiple debts into one loan with a fixed payoff schedule). Or, you might decide the debt snowball method is a better fit (starting to pay off small balances then moving to bigger ones). Either way, having a plan to manage your debt will improve your overall financial well-being.
Money management tips for everyone
If you’ve made any of the money mistakes we’ve listed, don’t worry–you can turn it around by following these money management tips. No matter where you are in your financial journey, you can find help. Prosper has tons of resources to help you gain control of your finances, whether you just need information or are interested in taking out a HELOC or consolidating debt.
Staying on top of your finances takes time and effort, but the payoff is worth it (pun intended). By following these money management tips and correcting financial mistakes you may have made in the past, you’re setting yourself up for financial wellness in the future. Read more about preparing for the future by creating a budget.