9 Money Traps To Avoid If You Live on Just a Social Security Check
Written by
Sean Bryant
Edited by
Amber Barkley
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Living a comfortable retirement on only a Social Security check can be difficult. To make your income stretch even further, it’s important to stay away from common money traps that could eat into your retirement funds.
Unfortunately, there are a lot of money traps out there. These are things that are important to avoid for everyone, but even more important if you’re living on only a Social Security check each month. Here are nine money traps and how best to protect yourself so that you can live more securely with only your Social Security income.
1. Not Having a Good Understanding of Your Spending
One of the biggest money traps you can fall into is not knowing where your money goes each month. Without understanding how you spend money, you’ll never know if you’re spending money you shouldn’t.
To understand your spending habits, set up a budget. This is going to help you track what you’re spending money on each month and find out if there are things you can cut back on to make sure your income goes further.
2. Not Having an Emergency Fund
An emergency fund is money you set aside for future emergencies. Having an emergency fund helps you avoid taking out a loan or putting expenses you can’t immediately pay on credit cards, thus putting you into debt.
Make a goal for how much you want to save each month for your emergency fund. Your emergency fund should have enough to cover your essential costs for several months.
3. Not Keeping Your Emergency Fund in a High-Yield Savings Account
Once your emergency fund is started, you must know where to keep it. You could choose a checking account at your local bank, a basic savings account or even a sock drawer. However, a high-yield savings account is the best place to keep your emergency fund.
A high-yield savings account is like a regular savings account, except it has a much higher interest rate. That means you earn more interest on your savings while it sits in the account, plus you can withdraw your money at any time. If you are not keeping your emergency fund in a high-yield savings account, you are missing out on free money from interest.
4. Scams
Unfortunately, there are a lot of scams out there. If something seems too good to be true, it might be. Before you send any personal information — like bank accounts, your Social Security number, your home address, etc. — do your research to ensure the source is legitimate.
5. Buy Now, Pay Later
Buy now, pay later is a type of short-term financing. It allows you to make purchases and pay for the item over time. You will typically make a small down payment of a percentage of the overall purchase amount and then make a series of interest-free installments over a few weeks or months.
If you are late on one of your payments, you will likely have to pay a late fee, which could be reported to the credit bureaus, hurting your credit score.
6. Co-Signing a Loan for an Irresponsible Borrower
When you co-sign a loan for a family member or friend, you take responsibility if the other person doesn’t pay. This could negatively impact your credit score. If you are considering co-signing a loan, ensure the borrower is financially responsible and that you feel comfortable that they will be able to make timely payments.
7. Carrying a Balance on Your Credit Cards
Credit cards can positively impact your credit score if you use them responsibly. However, carrying a balance on your card can lower your credit score. It also means the things you purchase cost more, because you’ll pay interest on your balance. If possible, pay off your credit card in full and on time each month.
“Depending on credit cards to address financial emergencies can lead to a cycle of debt with high-interest payments,” said Alec Kellzi, CPA at IRS Extension Online. Instead, retirees should prioritize building an emergency fund to handle unexpected expenses without relying on credit.
8. Paying Fees
Late fees, bank fees and overdraft fees are avoidable, and you shouldn’t be paying them. If your bank charges a fee just to bank with them, start looking to switch banks.
Late fees are charged when you miss a payment. On the other hand, overdraft fees are charged when you spend more money than you have available in your bank account. Both fees are avoidable if you pay attention to your account each month.
“Overdraft fees can add an unnecessary burden to already tight budgets,” said Roger Fishel, financial advisor at Roger Fishel Financial. “Understanding how overdraft fees work and implementing strategies to avoid them can help seniors living on just Social Security maintain financial stability.”
Fishel said, “Regularly review your account balance and transaction history to stay aware of your financial standing. Online banking and mobile apps make it easier than ever to track your account activity in real-time.” He also mentioned that it’s essential to set up alerts when you have a bill coming due or your bank balance falls below a certain threshold.
9. Unnecessary Subscriptions
Review your credit card or bank statements to ensure you aren’t paying for unwanted subscriptions. If your budget is tight, you may want to consider canceling unnecessary subscriptions, like for TV, magazines, shopping, etc.
The Bottom Line
If you’re living on just Social Security each month, you must be more careful with your money. By avoiding these money traps, you can avoid wasting any money that could put you in a financial pinch.
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