Not all money mistakes are created equal. If you forget to use a coupon when you buy that gallon of milk, it might cost you fifty cents. It stinks to pay more than you need to but the mistake costs you only fifty cents. If you decline the flood rider for your homeowners insurance and are hit with a flash flood, that's a mistake that can cost you dearly. Both are money mistakes, but one has a microscopic impact while the other hurts significantly.
[In Pictures: 12 Money Mistakes Almost Everyone Makes]
Today, we're going to go over a few money mistakes we all make that have the potential to cripple you financially. These mistakes are common, have a significant impact, and are often very easy to fix.
Not having an emergency fund
Plan for the worst, hope for the best. These past few years have been an especially trying time for a lot of folks and the last thing we want to think about is how it can get worse, right? Unfortunately, things can get worse and the only way we can protect ourselves is by setting up an emergency fund to help weather those disasters. It's very easy to forget about setting up and maintaining an emergency fund because we are so focused on everything else but car accidents and medical bills don't wait for prosperity to strike.
You don't want to be forced to put the next bill on your credit card, at double digit interest rates, and put yourself in a far more dangerous financial position. Experts recommend that you save anywhere from three to twelve months of expenses into your emergency fund. The more you have, the better. No one ever complained that a safety net was too large.
Failing to set financial goals
You can't improve something if you don't measure it and you can't reach your goals unless you set them. As we go about our daily lives, it's very easy to get caught up in the day to day activities. We forget our longer term goals because we're so busy focusing on today or this week. Imagine the captain of the ship steering by the mile without any designs towards a specific destination—it would be chaos.
The same is true for your life, financial and otherwise. Set financial goals and measure your progress towards reaching them. Celebrate the victories and learn from the mistakes. Without a set goal, it becomes very difficult for you to plan for the future and chart the way forward. If you have savings goals like a downpayment on a home, track how much you've saved towards your home. If you have retirement savings goals, it's important to track those as well.
Missing a credit card payment
When you miss a credit card payment, you will be hit with a missed payment fee that can cost you as much as $40. You will also lose the grace period on new purchases, which means interest on your purchases accrues immediately (if you are carrying a balance, you often don't get a grace period). Next, your credit card company may report this missed or late payment to the three credit bureaus and this will lower your credit score. From here, the door flies wide open since your credit score is used in so many unexpected ways. See how one missed payment can have such a disastrous and cascading effect on your finances?
[Visit the U.S. News My Money blog for the best money advice from around the web.]
Not reviewing your credit reports
The government went through a lot of trouble to give you the right to review your credit scores every twelve months, take advantage of it. Through AnnualCreditReport.com, you can get a copy of your report from each of the credit bureaus. Review your reports at least once a year for errors because they are far more common than you think (in a 2004 report by the US PIRG, one in four reports had an error). If you do find an error, follow the FTC's instructions on how to dispute credit report errors. You don't want to discover an error when you're applying for a mortgage because the dispute process can take months to resolve.
Each of these money mistakes has the potential of crippling your financial life if you don't fix it as soon as possible. Why not right now?