10 Ways You Might Sabotage Your 2015 Financial Resolutions
This year, I've decided to commit to getting my finances in order. If you'd like to follow suit, read on for a list of the potential pitfalls that can ruin financial resolutions, especially if they involve being more frugal.
Not Setting a Budget
Banks don't go by ballpark guesstimates, so why should you? Clearly outlining a list of your monthly expenses is vital for effective money management. Once you see where your money is going, ask yourself whether the right amounts are being spent on the right things. A good guideline is the 50/20/30 rule, which splits your budget into three categories: fixed costs (rent, utilities, Netflix), financial goals (paying down debt), and flexible spending (groceries, entertainment, gas).
Not Sticking to Your Budget
Having a spending plan is worthless unless it's actually utilized. That means tracking spending on a regular basis. These days, there's no excuse for not banking online (or on your smartphone). Simply pick a money management app that works for you, whether it is one that directly links to your credit and checking accounts, or one that requires you to manually input your expenses.
Setting the Wrong Goals
Goals are great motivators... unless they're motivating you to do the wrong thing. A summer vacation abroad sounds lovely, but would it make more sense to put that money toward repaying student loans or saving for a down payment on a house? Keeping things in perspective can be tough, but it will pay off in spades.
Making Impulse Buys
A scarf here, a sweater there -- what's the harm? It can add up to be a lot. Retailers design their stores to encourage customers to buy as much as possible. One way to avoid temptation is to avoid going to the store altogether. Shopping online can provide that critical distance you need to make informed purchases. It also allows you to more easily make price comparisons, so you know you're getting the best deal.
Not Starting an Emergency Fund
Life happens. Vague, I know, but that's kind of my point. You can't predict when you're going to get that flat tire or if that toothache will turn into a root canal. Whatever misfortune may occur, of one thing you can be certain -- it's going to cost you. That's why it's important to set aside an appropriate sum of money to deal with emergencies. Putting 10 percent of your paycheck in a separate savings account is a great place to start. How much is enough depends on your situation, but three to six months of expenses is a safe number. Mind you, this is not a long-term savings plan (more on that later).
Ignoring Debt
Debt comes in many forms, but for millennials, the most common is the student loan. Like many indebted students, I deferred my loans as much as possible. My latest deferment ended around the time I was lucky enough to find gainful employment. Rather than try an income-based repayment plan, I decided to pay as much as I (comfortably) could each month. Realistically, I don't have many expenses right now -- no mortgage, no kids, no car payments or any other major financial demands. Why not try to get out of debt now? I urge you to ask yourself the same question.
Not Saving
After rent, electricity, water, gas, groceries, internet, Netflix, emergency funds, student loans and all those other creature comforts, is there any money left to save? There should be. Saving as little as 5 percent of your income can add up over time, especially if you put it in the right place. Standard savings accounts earn little interest, so consider other options such as money market deposit accounts or certificates of deposit (CDs). If you want to start saving for retirement, look into 401(k) and IRA plans.
Mishandling Credit
This doesn't just mean overspending or letting bills pile up. Credit is an important tool for making major purchases. As wary as I am of credit, I know I need to start establishing a credit history so I can make these purchases when the time is right (I don't want to be an apartment dweller my whole life). Getting a credit card with a low spending limit (and paying off the balance each month) is a good way to begin building up your credit score.
Letting Facebook Get in the Way
Ah, the stereotypical Millennial slight -- too much time wasted on social media. Time, however, is not what I'm talking about, although, who among us couldn't benefit from a little less social stalking? I'm more concerned with Facebook envy, the self-imposed shame spiral that starts with a status update about a new job or a photo posted from an exotic locale. Social media boasting can inspire envy in the best of us -- maybe even encourage us to spend when we really shouldn't. So, forget Facebook. Focus on what you have, what goal you're working toward, and how far you've come. It's called personal finance for a reason.
Beating Yourself Up
Money management is an on-going process. Stumbling into these pitfalls every now and then is almost impossible to avoid. Rather than dwell on the damage, remember to learn from your mistake, make any necessary changes to your budget and move forward.
Chris McGillicuddy is a freelance writer and PR Guy for Offers.com. He's a book-loving millennial who always has an eye out for new ways to save.
