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MintLife Blog > Financial Planning > Watch Out for These 5 Financial Pitfalls

Watch Out for These 5 Financial Pitfalls

Financial Planning

“To err is human,” the famous Alexander Pope quote begins.

It’s a good reminder that everyone runs the risk of making a choice they may regret — even when it comes to finances.

As a matter of fact, the Consumer Federation of America reports that 67 percent of the American middle class admits having made a poor financial decision at least once, and 47 percent of those respondents made more than one bad decision.

The price tags of these costly decisions vary greatly, from a few thousand to hundreds of thousands of dollars.

Mistakes happen, but you can help avoid many of them with careful planning.

The trick is to identify where your troubles may arise, and to take appropriate action before a small hiccup takes a turn for the worse.

Of course, you may consider consulting a personal finance professional for advice specific to your situation, but here are five common pitfalls to avoid:

Living Without a Budget

A budget is a way to help keep control of your spending.

Ask yourself: How much would you enjoy driving cross-country in a car without a working fuel gauge?

It’s not overly romantic or exciting, but a budget is a lot like a car’s gas gauge.

Without one, you’d have to guess how much fuel is left in the tank — or money is left in your bank account — and hope you make it to your next pit stop — or paycheck.

And if you’re wrong, you’ve got a long walk ahead of you.

Setting a budget and sticking to it will help you make sure you have enough cash for your needs and wants — and that you won’t be left high and dry in your time of need.

Begin by accurately assessing your finances. Include all income, spending and surprise expenditures. Then set a realistic budget that you can stick to.

Carrying Credit Card Debt

You’re not alone if you’re carrying credit card debt month after month. America’s total credit card debt in May 2013 topped $847 billion.

By working hard to pay off your outstanding credit card bills, you’ll ultimately break a vicious cycle of paying high interest rates on balances you carried from month to month.

Sometimes debt consolidation is an option, as well.

No matter what course you take to get there, being free of credit card debt is a huge financial advantage.

Forgetting to Check Credit Reports

Some people wait until they’re applying for a car loan or home mortgage before checking their credit reports — but checking your credit report regularly can help head off a variety of problems.

Keeping tabs on your credit report can keep you aware of any mistakes and alert you to any fraudulent activity, allowing you to address any irregularities and take steps to strengthen your overall credit rating.

The Fair Credit Reporting Act (FCRA) requires each of the three national credit report companies—TransUnion, Experian and Equifax—to give you a free copy of your report every year.

All you have to do is request it.

Failing to Save Money

As Benjamin Franklin wrote in Poor Richard’s Almanac, “Beware of little expenses: a small leak will sink a great ship.”

Whether it’s a major home repair or pricey dental work, these “small leaks” can creep up in your life when you least expect it.

Regularly putting some money aside for emergency expenses can mean the difference between weathering a crisis relatively unscathed and being forced to rack up debt that will cost you even more money in the long run.

Out-of-Date Insurance Policies, Wills and Retirement Plans

Investing a little time now to get your financial, insurance and legal paperwork in order can help save you time and money in the future.

For example, have you recently changed jobs and have a shorter commute now?

It may be a good idea to call your insurance agent to make sure you’re receiving any available discounts — which mean more money in your pocket each month.

When was the last time you rebalanced your 401(k)?

If it’s been a while, you might want to consider checking your investments to make sure you get the highest return on investment possible.

What about your will — is it up to date?

By doing an annual review of these fiscally important documents, you’ll be doing yourself a big favor in the long run.

Avoiding financial pitfalls is easier when you’re informed. Keep an eye on your budget; don’t stop saving; and never be afraid to ask for financial planning advice from your bank or other trusted financial institution.

This guest post comes from the editors of The Allstate Blog, which helps people prepare for the unpredictability of life. 


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