10 Small Mistakes That Can Ruin Your Finances
As far as money goes, you may feel that you're on the right track. But even if you work hard and strive to make smart financial decisions, it only takes one or two small mistakes to ruin your good thing. (See also: Our Worst Financial Mistakes)
1. Underestimating Your Insurance Needs
Whether you're buying health insurance, renter's insurance, or auto insurance, it pays to have adequate coverage. Some people choose policies with the least amount of coverage to lower their premiums. This is financially beneficial on a monthly basis, but without sufficient coverage, you could easily deplete your savings replacing belongings or covering the cost of auto repairs or medical expenses.
Work with an insurance broker or financial planner to determine your insurance needs and then purchase adequate coverage for yourself and family. (See also: How Much Life Insurance Do You Need?)
2. Saving Too Little
A few hundred dollars in your savings account comes in handy when you need an auto repair or cash for another small, unexpected expense. Unfortunately, a small savings account may not provide enough cash to cover major financial setbacks, such as a job loss. And without cash to pay your bills, you could lose your house and car.
Building a 12-month cash reserve might be a stretch, but if you can establish a three- to six-month cash reserve, this might carry you until the financial situation improves. (See also: Best Online Savings Accounts)
3. Ignoring Your Partner's Money Behavior
If you're in a relationship and thinking about tying the knot, do not ignore iffy money behavior. Your partner may shop excessively and leave bills unopened, or maybe you suspect that he or she has bad credit. Just know that these issues could affect your financial future. (See also: Money Questions That Couples Should Ask)
If you get married (or move in with someone) and then discover your partner is bad with money, you could end up covering more than your fair share of household expenses. And depending on whether you share a checking or savings account, your partner could squander money, leaving you with nothing.
4. Staying in a Dead End Job
You may like your boss, your coworkers, and the company. But if you're stuck in a dead end job, you'll eventually hit a financial plateau.
The decision to stay in your current position may not ruin your finances today. But as the cost-of-living increases — and your income remains the same — you could start relying on credit cards or dipping into your savings account to make ends meet. (See also: Career Changes You Can Make Today)
5. Carrying a Balance on Your Credit Card
This seemingly small mistake can cost you big. Not only will you pay interest on the credit card month after month, but the more you owe the higher your minimum payments. This creates financial problems if minimum payments are too much for your budget, and you might miss a payment or two.
Your credit card company will then charge a late fee, and if you're more than 60 days late on a credit card payment, the company can increase your interest rate. This lateness could negatively impact your interest rate on future loans and credit cards, resulting in higher financing costs. (See also: 5 Ways to Wipe out Your Credit Card Balance)
6. Paying the Mortgage Late
If you have a long history of on-time mortgage payments, you may view a single late payment as a small mistake that won't damage your credit score. However, a 30-day late mortgage payment has a huge impact on scores. And the higher your credit score, the bigger the hit.
There are no hard and fast rules regarding how many points you'll lose, but being 30 or more days late can knock 80 to 100 points off your score.
7. Failing to Maintain a Budget
Maybe you don't have the patience to sit down and develop a spending plan. Then again, maybe you feel that budgets are pointless — as long as there's enough to pay the bills; to each his own. Understand, however, that this small mistake can hurt your finances.
Budgets are designed to keep your money on track, and when you don't have a budget, there's a greater chance that you'll overspend each month. And when you overspend, you increase the likelihood of going in the hole. Lack of a budget can also affect your savings plan. Those who don't budget tend to spend first and save later. (See also: How to Build Your First Budget)
8. Doing Business With a Handshake
Whether you're lending money to friends or family, or providing a service, skipping a formal contract can be disastrous to your personal finances.
Contracts outline the terms of a loan or service agreement, such as compensation. These essentially serve as a protection, ensuring you receive what's owed.
If you're working with friends and family, you may skip the formality and rely on trust. But without anything in writing, your friend or family member may choose not to pay up. And depending on how much you have on the line, this breach can hit your pocket hard. A contract, however, gives you the option to take legal action. (See also: A Quick Guide to Contracts and Agreements)
9. Oversharing on Social Media
You may see nothing wrong with partying and hanging out with friends. But if you're documenting your every move on social media, you can end up in hot water when applying for jobs.
Nowadays, more and more employers are turning to social media to assess whether a job applicant is a right match for a company. It takes more than skills, education, and experience to land a job — you also need a good reputation. (See also: How to Avoid Social Media Slip-Ups at Work)
10. Cosigning a Loan for Family or Friends
You undoubtedly worked hard for your high credit score; don't let anyone guilt you into cosigning a loan. Agreeing to cosign a loan can help someone get the financing they need. And if this person pays the loan as agreed, everything can work out fine. Still, you can't ignore the possibility of default, at which time you become responsible for any outstanding balance — and the potential hit to your credit rating.
Any other small mistakes that balloon into financial disasters? Share them in comments!