Financial Literacy

4 Financial Mistakes You Can Fix ASAP

We could all use a refresher on how to avoid common financial mistakes. Here are our 4 best money management tips to keep your finances in order.

Woman managing the debt while sitting on the floor with her dog and a pile of bills

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 four 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:

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:

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:

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:

Regularly monitor your credit report. You actually have multiple credit reports — one from each of the major credit bureaus: Equifax, Experian and TransUnion, which you’re 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:

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.

Mastering your finances

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:

Eligibility for personal loans up to $50,000 depends on the information provided by the applicant in the application form. Eligibility for personal loans is not guaranteed, and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement for details and all terms and conditions. All personal loans made by WebBank.

IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT.

To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify, and record information that identifies each person who opens an account.

What this means for you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver’s license or other identifying documents.

Eligibility for a home equity loan or HELOC up to $500,000 depends on the information provided in the home equity application.  Loans above $250,000 require an in-home appraisal and title insurance.  For HELOCs borrowers must take an initial draw of $50,000 at closing. Subsequent HELOC draws are prohibited during the first 90 days following closing. After the first 90 days following closing, subsequent HELOC draws must be $1,000 or more (not applicable in Texas).

The time it takes to get cash is measured from the time the Lending Partner receives all documents requested from the applicant and assumes the applicant’s stated income, property and title information provided in the loan application matches the requested documents and any supporting information. Spring EQ borrowers get their cash on average in 26 days. The time period calculation to get cash is based on the first 6 months of 2022 loan fundings, assumes the funds are wired, excludes weekends, and excludes the government-mandated disclosure waiting period. The amount of time it takes to get cash will vary depending on the applicant’s respective financial circumstances and the Lending Partner’s current volume of applications.

Spring EQ cannot use a borrower’s home equity funds to pay (in part or in full) Spring EQ non-homestead debt at account opening.  For HELOCs in Texas, the minimum draw amount is $4,000. To access HELOC funds, borrower must request convenience checks.

Interest rates may be adjusted based on factors related to the applicant’s credit profile, income and debt ratios, the presence of existing liens against and the location of the subject property, the occupancy status of the subject property, as well as the initial draw amount taken at the time of closing. Speak to a Prosper Agent for details.

Qualified applicants may borrow up to 95% of their primary home’s value (not applicable in Texas) and up to 90% of the value of a second home. Home equity loan applicants may borrow up to 85% of the value of an investment property (not applicable for HELOCs).

All home equity products are underwritten and issued by Spring EQ, LLC, an Equal Housing Lender. NMLS #1464945.

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