NDSU Extension Service - Ramsey County

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Common Money Mistakes

Common Money Mistakes

 

                Life is hopefully an accumulation of information both from experience and textbooks but still most of us make our share of mistakes.  Unfortunately, some types of mistakes happen to a great many people – and financial mistakes are in that category. Following are some common financial mistakes and suggestions on how to avoid them.

                Not Knowing Where the Money Goes- It is not unusual when families do not know how much they spend for insurance, transportation, eating out, and other routine expenses. One financial planner says most people can’t account for 20% of their income. People work hard to earn a living. Effort should also be put into planning the use of money and savings. At least once a year, itemize family expenses and analyze them.

                Failure to Set Priorities and Goals - When financial priorities and goals are not established, too much money can be frittered away on inconsequential items that are not financial assets. The term “standard of living” is often used incorrectly in place of “level of living.” Your standard of living is that which you can reasonably hope to achieve. Your level of living is the way you actually live from day to day. In terms of financial goals and priorities. One’s standard of living and one’s level of living can be quite different.

                The Tendency to Be Too Trusting – “This property will double in value in 24 months.” “Earn hundreds of dollars in your spare time.”, “You will save the purchase price in just one year.”  It’s amazing how many people take advice from strangers without questioning their expertise or experience. Take time to do your homework before parting with your hard-earned money. Don’t be rushed into financial decisions. If you are being pressured into a fast decision, take this as a signal that something may be wrong.

                Delaying Planning for Retirement - Social Security was designed as a safety net to help avoid total poverty, not as a pension plan but for many Americans Social Security is the only retirement planning they have in place.  Even as you consider other savings goals, it's important to continue saving for retirement. Be sure to take full advantage of your workplace savings plan (including catch-up contributions if you are age 50 or over), and contribute to an IRA and other tax-advantaged investments to save even more.

                Overuse of Credit - The credit debt prevents many people from achieving financial goals. When next month’s paycheck is continually promised for goods purchased today, economic security is jeopardized. There are various rules of thumb for the amount of credit one can safely use. A sensible approach is to find out how your money is currently being spent. Next, set aside a sum to be saved monthly. If there is money left over after expenses and savings, you can decide whether to take on additional debts.

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