5 money mistakes that are costing you thousands
Discussing money with our loved ones is awkward at best – and intimidating and nerve-wracking at worst. While budgeting is by no means a sexy topic of conversation, it’s a necessary endeavour to achieving your goals and creating the life you want.
Unfortunately, there are plenty of financial decisions that cost us dearly – just think about what you could do with an extra $2,500 to $5,000 in your pocket. It’s not typically one big ticket item that breaks a budget, but rather, “death by a thousand cuts” as the saying goes. The bright side is that your simple mistakes often have simple solutions.
1. Using credit instead of cash
Having room on a credit card isn’t always a good thing: research shows that people spend up to 18 per cent more when using credit cards instead of cash. If you have the ability to buy “that extra something,” your impulse spending risk goes up; if you have a points or cash-back credit card, you’re even more likely to spend to get the extra points.
The solution: Leave your card credit card at home and withdraw cash for shopping – especially for groceries.
2. Making only minimum payments on your credit card
Making minimum-only payments is a financial No Man’s Land. Case in point, if you have a credit card with a balance of $5,000 and an interest rate of 19.9%, you’re required to pay two per cent as a minimum payment on a declining balance – think $100 on the first month, $99 on the second month, and so on. At that rate, it will take you about 65 years – and more than $22,000 in interest! – to pay off your credit card. If you take that same scenario and upgrade to a fixed payment of $125 per month, you’ll be debt-free in just over five years (assuming you’re not reusing the card). Of course, you’ll still pay $3,274 in interest, but your future-self will thank you for the saved time and money.
The solution: Do your best to put your credit products away. If you absolutely must use credit, be sure to make higher than minimum payments.
3. Purchasing a brand new car
That new car smell is inviting, but the costs associated with it can sour your purchase. Plus, your car depreciates in value the moment you drive it off the lot – statistics range from a 10 to 20 per cent drop within the first year.
The solution: If you’re in need of a vehicle, consider buying a reliable used vehicle. You’ll save on the value and your monthly payments will likely be lower.
4. Ignoring low-interest credit products
Some interest rates on various credit products can be anywhere between 25 to 40 per cent, and payday loan interest rates, when annualised, can be over 400 per cent.
The solution: If you can, consolidate your debt into a product with lower interest rates.
5. Having expensive hobbies
There’s nothing wrong with a round of golf or a dance class for couples, but it’s important to consider the whole cost of your recreational activities. Factors like registration fees, equipment and transportation tend to add up quickly.
The solution: Consider activities that are in line with your budget and look for ways to save some money. For instance, if you love golf, try buying used equipment.
Written by Stacy Yanchuk Oleksy. This article first appeared in Reader’s Digest. For more of what you love from the world’s best-loved magazine, here’s our best subscription offer.