I believe a budget is the most essential tool you can have in your financial toolbox and trying to manage your money without one is like walking a tightrope without a net.
I also know that putting one together is tough when you're saddled with student loan debt or living paycheck to paycheck.
A little knowledge can go a long way when it comes to effectively managing your finances.
These are the 10 most common money mistakes people make when financial literacy is lacking.
1. You Don't Understand How Your Student Loan Interest W
Student loans are the bane of many a college grad's
That means knowing what kind of interest you're paying for the loans and how it's calculated.
For example, federal loan rates for subsidized and unsubsidized loans are the same at the undergraduate level but they're higher if you're financing a graduate degree.
With a subsidized loan, the interest doesn't accrue during a deferment but the meter's always running with unsubsidized loans.
Student loan interest is typically compounded daily so the sooner you make a payment each month, the more interest you can shave off the balance.
Making biweekly payments also allows you to pay it down faster.
The better you understand your student loan interest, the easier it is to use simple hacks like these to speed up your payoff.
2. You Pay Hundreds of Dollars a Year in Bank Fees
Paying excessive fees just to have a checking account doesn't make sense, especially if you're constantly getting hit with overdraft charges or you're subject to strict minimum balance requirements.
The average checking account has dozens of different fees, which adds up to billions of dollars the banks are making off of customers each year.
Switching to an online or mobile-only bank instead is an easy work-around for avoiding those extra charges.
Banks like Ally and Capital One 360 don't charge any monthly maintenance fees and the overdraft fees are much lower than the $34 to $36 you'd have to pay at a big bank.
3. You Have No Idea What Your Credit Score Is
Credit scores seem to be one of the most misunderstood concepts in personal finance but demystifying them isn't as hard as you think.
There are several different scoring models floating around but FICO scores are the ones used by most lenders.
These scores are calculated based on five different factors and range from 300 to 850, with 850 the best score possible.
If you're in the dark about what yours is, you need to check it ASAP to see if it needs some work.
Tip: Many credit card companies, including Discover, Chase, Citi, and Capital One, offer accountholders free access to their FICO score.
4. You Avoid Credit Cards
Credit cards get a bad reputation, especially among millennials who tend to shy away from using them for the most part.
It's true being irresponsible with your card can lead to debt but if you're diligent about keeping charges to a minimum and paying off your balance each month, a credit card can be a powerful financial tool.
Taking a completely hands-off approach to credit cards can work against you when you're trying to make a big purchase like a home.
Without good credit, it's much harder to qualify for loans or get the best rates.
Not only that
5. You Think Wealth is the Same Thing as Income
Making big bucks at your job isn't the same thing as being financially secure.
If you want to be wealthy, you need more than just a high salary.
You have to go the extra mile which means eliminating high-interest debt, building your nest egg and investing wisely so you can see your money grow.
6. You Don't Participate in Your Employer's Retirement Plan
A 401(k) is one of the easiest ways to save for retirement and if you're not chucking a few bucks into yours each month, you're doing yourself a major financial disservice.
Not only are you missing out on the power of compound interest but you're passing up free money in the form of an employer match.
For example, if you're 30 years old and put $100 a month in your 401(k) until you turn 65, you'd have nearly $260,000 saved assuming a 7 percent rate of return and a 50 percent employer match.
If you maxed out your annual contributions up to the limit, which is currently set at $18,500, you'd have close to $3 million by the time you retire.
That's a good incentive to start saving now.
7. You Pay Bills Late
When you're in your 20s and still figuring out your finances, it's easy to let a due date slip past you here and there.
The problem is that when you pay late, you end up with late fees which adds to your expenses.
If you're late on a debt, like a credit card or student loan, it shows up on your credit and drags down your score.
Once your score goes down, it's a lot harder to build it back up.
Tip: Sign up for an account with budgeting app, which allows you to keep tabs on your account balances and set up bill payment alerts so you never have to worry about paying late.
8. You Still Keep Your Savings at a Big Bank
If you're actively saving money, parking it in the wrong place can cost you money at the end of the day.
Due to their higher overhead costs, big banks usually can't afford to pay a significant amount of interest on savings accounts.
An online bank, on the other hand, usually has lower expenses so their customers see more of a payoff from their savings.
Credit unions can sometimes offer better rates as well.
If you've still got your spare cash at a big bank, check out the rates online banks are offering to see if there's a better deal to be had.
9. You Have No Financial Safety Net
The only thing worse than letting your money languish in a low-interest savings account is not having any savings at all.
Having 3 to 6 months' worth of expenses in the bank is the rule of thumb as far as emergency funds go but if you can't get that much together at once, there's nothing wrong with starting small.
Putting $10 or $20 a week into a high-yield savings account is enough to get the ball rolling and as you increase your income or reduce your expenses, you can step up your savings effort.
Any kind of buffer is better than none, especially if it saves you from having to take out a high-interest loan to cover an unexpected expense.
10. You Don't Have the Right Kind of Insurance
Insurance is designed to protect you against financial loss but if you don't have any, you're leaving yourself wide open for disaster.
Millennials, in particular, are the worst when it comes to taking care of their insurance needs.
How Many of These Common Money Mistakes Have You Made?
We've put together a scorecard to give you an idea of how where you fall on the financial literacy scale.
Take a look to see how you did and what you can improve on:
1-3 : You have the occasional slip-up but overall, you seem to have a pretty good grip on how to make the most of your money. Just make sure you're keeping an eye on your interest rates, staying on top of your bills and keeping those bank fees to a minimum.
4-6: If you fall in the middle range, you're probably doing okay but you could be doing better. Starting an emergency fund should be a priority if you don't already have one and you can build your credit by using plastic wisely.
7-10: This is financial danger zone territory and you don't want to hang out here any longer than you have to. If you're lacking basic insurance or you haven't started saving for retirement yet, you'll want to tackle these issues as soon as possible.