Once you start earning a regular income, it's okay to treat yourself once and a while. But it's also very important to keep watch of your spending behaviors, as even the smallest missteps can lead to bad money habits that could wreck you financially. To help you avoid trailing off into the wrong path, here are some five common money mistakes you might be committing and some ways to break free from them:
#1 Not saving enough
According to a Bank of America study conducted in 2018, the top financial stressor for millennials is undisciplined saving. Many young adults are simply not putting aside enough money on a regular basis, which leads to them not being able to meet their savings goals. When you start earning a steady income, it's important to pay yourself first just so you get into the habit of doing so.
A great way to ensure this is to set up an automatic transfer so that part of your paycheque moves from your checking account to high-interest savings account each month. You could also set up separate savings accounts for different savings goals you may have, just to avoid dipping into your emergency savings.
#2 Spending too much
It is incredibly easy to rack up consumer debt in this day and age, especially with online shopping on the rise. The average American spends around $1,500 a month on nonessential items, and that can add up to as much as $18,000 a year. Overspending becomes even worse during the holiday season when people are stressing over buying gifts for their loved ones.
The best way to tackle overspending is by engaging in certain practices that strengthen your discipline against it. For example, if you are someone who eats out or orders take-out often, reducing the urge to do so can help you save a lot of money in the short-term. You could also cancel personal services like a gym membership or magazine subscription to cut some expenses. These simple steps will lead to immediate improvements in your monthly financial situation.
#3 Accumulating debt
Debt is a silent killer. If you aren't careful, it can creep up on you fast. One of the easiest ways to build debt is by using credit cards and not paying them afterward. When dealing with credit card debt, one strategy you could do is shop for interest rates and transfer the balance to a lower interest credit card (ideally, 0% APR).
Another good practice would be to pay off the cards with the highest balances and highest interest rates first, then work your way down. If you can only afford to pay the minimum payment on your credit card, you should probably just get rid of that card altogether.
#4 Not saving early
Many young adults aren't saving for their retirement. When it comes to retirement, "better late than never" may not always apply. It's important to take advantage of employee benefits like 401(k) match programs if such are available options for you. These accounts will allow you to save a portion of your paycheck before taxes, and many employers will match that contribution. That's basically free money you can take advantage of.
If you're younger, you should also consider starting an IRA, or an Individual Retirement Account. This will encourage you to start saving earlier as any savings contributed to this account will take more time to grow, due to compound interest.
#5 Stressing out
Money is a top source of stress for many Americans, and it can lead to people ignoring their money problems. It can be easy to get overwhelmed with financial obligations, especially when you have other people aside from yourself to take care of. The best way to get out of that mental rut is by taking things one at a time.
Finding what motivates you to accomplish your goals can help relieve some of the financial anxiety you may be experiencing. Everyone is going to face some financial setbacks, but if you take on your challenges in steps rather than all at once, you may find it easier to overcome them.