In the not very long ago managing your personal finance was relatively simple. Just ask your parents. When they were young they probably had checking and savings accounts and that was about it. They used a combination of their checking account and cash to pay for their day-to-day expenses and whenever there was money left over they deposited into their savings account. If they had any credit cards they probably had just one and paid off their balances at the end of every month. They probably also had a mortgage, which they paid monthly by check.
But things have changed considerably. The world of personal finances has become so complicated that if you don’t manage yours very carefully you could take a big hit your financial health as well as your retirement fund.
Here are seven personal finance mistakes you should never make as they would definitely ding your finances.
Not taking advantage of online money transfers
There are two places where you will never earn much interest on your money. They are your checking and savings accounts. This is why you should have a money market account at your bank or a high-interest savings account linked to your checking account. After you have done this, you should never make a deposit directly into your checking account. Deposit everything into that higher interest account instead. Then as you need money, move it from that account into your checking account using online transfers. Move only the amount of money you need to cover whatever checks you write.
Keeping your money in a savings account at your bank
This dovetails with what we said in the above paragraph. The interest you would earn on a bank savings account today is nearly zero. This is why you should never deposit any of your money into one. If you do, the interest you’ll earn will probably be less than the rate of inflation. This means you’re actually losing money when saving money. Put whatever cash you need to have available into a bank money market account where you’ll at least earn somewhat better interest and many of these accounts come with free check-writing privileges. Don’t overlook those online banks for your cash investments. Most are FDIC insured just as is your brick-and-mortar bank.
Paying your bills too quickly
One thing you want to do for sure is hanging on to your money as long as you can so that it’s earning interest. The way you do this is by setting up a system to pay your bills just before or on the day they’re due. If your bank doesn’t offer a system for paying bills online, you will need to go to your creditors as most of them do. Of course, you don’t want to pay them late as this would hurt your credit standing. And you definitely don’t want to make late payments on your credit card bills because of the oppressive interest rate that you will be required to pay.
Failing to shop for better interest rates
Thanks to bank deregulation banking has become very competitive. Whether you’re paying or receiving interest it’s important to shop around. You will likely find wildly different interest rates and bank charges. When you find something better than what your current bank is offering, jump on it. Don’t stick with the bank just because you’ve been with it for “forever” if it isn’t competitive.
Overdrawing your account
One of the ways that banks are trying to increase their revenues is by making you pay a big penalty for a small error. As an example of this, let’s suppose you have $300 in your checking account and you write three checks. You write the first one for $20, the second for $30 and the third for $290. Did you know that some banks process checks in order of size and not in order received? In this case, that $290 check might be processed first so that all three checks would end up bouncing. You would then be hit with three overdraft charges that could add up to as much as $105. This is because some banks are actually charging, believe it or not, $35 for each check you overdraw.
Not managing cash flow with the help of your computer
You should definitely let your computer takeover every aspect of your personal finances including your investments. Software products such as Quicken® and Money® are now much easier to use than they were just a few years ago and they can help you gain the greatest advantage in your personal finances. These programs will produce reports at the touch of a button that can show you exactly where you stand financially and what you need to do to maximize things. There is also a wealth of apps available for both iPhones and android phones that make it much simpler for you to manage your money. The most popular of these is probably Mint.com, which will track your spending and help with your budgeting as well as monitoring your investments and credit cards. If it finds a better product than what you’re currently using it will even alert you by email.
Staying with the wrong bank
Have you noticed the “merger mania” that’s been going on in the world of banking? This is why you could wake up one day and find that the bank with which you’ve been doing business for so many years is no longer around as it has been merged into a strange new bank that now holds your accounts. It’s likely that this new bank will be one of the new megabanks, which brings up the question of will it treat you better? The answer to this is forget about it. Many of these megabanks are just raising inefficiency to a new level as well as dumbing down their customer service. The good news is that you can solve this problem very easily. Just look for the smallest bank in your neighborhood that’s FDIC insured and move your business to it. You’ll get more personal attention from a small bank then you ever will at one of those megabanks and you’ll have exactly the same insurance protection. Plus, there’s just something nice about being able to walk into your bank and be recognized, not just as another 10-digit number but as an actual, real live person.