By  Thu Dec 27, 2012

Are You Making These Mistakes With Your Money?

Charles Sporn / flickr | http://www.flickr.com/photos/spornographer/3360880404/

Charles Sporn / flickr source

Some financial mistakes are so big you could find yourself in over your head with debt you can never afford to repay; while other money mistakes are just inconvenient and cost you more than they should. Are you making these mistakes with your money?

Using a Debit Card for Spending that Places a Hold on your Funds

Swiping your debit card instead of a credit card can be a good strategy to avoid paying interest on purchases while still enjoying the convenience of a card and eliminating the need to carry cash. Debit cards are not always the best method for making payment, however, particularly for purchases that also require a “hold” on additional funds.

Using debit cards at gas stations can result in a hold of $80 even if you only put $40 or $50 in your tank. The money is held and you can’t use it until the gas station transmits all of its credit card purchases to their bank for processing. If you count on the money that is being held by the gas station as being in your account and attempt to use it, you could be hit for overdraft charges.

The absolute worst time to use a debit card instead of a credit card is when traveling. If you use a debit card to reserve a hotel, for example, not only will a hold be placed on the amount of funds needed to pay for your stay, but additional money for estimated room service charges and other fees can be placed on hold for up to 15 days. This is an even bigger issue if you reserved your hotel room with a debit card but then decide to pay with another source of payment. Even after making payment with another card or with cash, your debit card funds can still be on hold until the transaction is fully processed after your stay. For people expecting to use the money in their bank account while traveling, they could be in for a shock if that money is no longer available because it is on “hold.”

Making Inaccurate Budgets

A budget will only work if it accurately accounts for all of your income and expenses, including irregular or non-monthly expenses.  For example, many people create a monthly budget that fails to consider holiday expenses or annual vacations, so when they get ready to do their holiday shopping or book travel expenses, they don’t have room in their budget to do it.  Other expenses may not be paid on time, and it will take a few weeks to get back on track financially.

When creating a budget, you need to factor in all expenses – even those you do not pay on a monthly basis – and make sure you set aside money for the irregular expenses all year long.  So if you spend $1,000 every holiday season, save $84 a month in an account labeled for the holidays.  If you take a $3,000 vacation each year, you need to set aside $250 a month to cover the cost.

Saving the money toward irregular expenses in a savings account will earn very minimal interest, but it will still be better than paying interest on credit cards if you don’t plan for these expenses and end up charging them instead.

Paying Your Mortgage Off Early

The idea of living in a home that’s fully paid for sounds awesome, doesn’t it?  Paying your mortgage off early may not be the brilliant financial move it sounds like, especially if you have higher interest debt or a struggling retirement account.  Your mortgage is probably one of the lowest interest debts you have, so it makes more sense to pay off high interest debt that is costing you more long-term and then get money into a retirement account that allows you to contribute pre-tax dollars.  You pay for your mortgage with after-tax dollars.

Failing to Plan for Retirement

Many people aren’t setting aside enough money for their retirement.  With the average Social Security payment of $14,760 per year, it’s important that people have money saved toward retirement.  Living on $14,760 per year is difficult, if not impossible, and with rising medical costs as we age, it’s necessary to start putting aside money every month toward your retirement years.

 

 

 

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