Money Mistakes You Made Today

 

It’s payday, so there’s money in your account. Excited, you plan a fun night and weekend so you can unwind after a hectic workweek. Perhaps you’ll go to happy hour tonight, do some shopping tomorrow and treat yourself to a fancy dinner the day after.

But before you know it, your money is gone and you’re left wondering where it all went. And so, you find yourself back where you started: eagerly awaiting the next payday. You might be living in this paycheck-to-paycheck cycle if you’re regularly making common missteps with your money.

“It’s the small things over time that either make or break a person’s financial security,” said Kyle Winkfield, an investment advisor and managing partner of O’Dell, Winkfield, Roseman and Shipp.

If you want to get ahead financially and stop living paycheck to paycheck, don’t make these money mistakes today, on payday — or any day for that matter.

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1. Spending Without a Budget

When most people get paid, they cover their big expenses such as rent or mortgage payments. But then they don’t have a plan for how they’ll spend the rest of their paycheck.

“After that, it’s living for the weekend,” said Winkfield. This reactionary spending, as he calls it, is the biggest mistake people make.

To avoid it, you need a budget. But that doesn’t mean you have to stop buying everything you enjoy — you just have to be mindful of how you’re spending your money, said Winkfield. You can achieve this by doing two things.

Start by identifying your goals so you know where you want your money to go. This will give you a reason to budget and cut spending. “If you don’t have a why, you’re going to fail on the how-to,” said Winkfield.

Then, write down every penny you spend for 30 days in a money journal, he said. This will help you identify mindless spending and become aware of how much you could be putting in savings to achieve your goals instead. By doing this, people often discover that they’re spending more than they think and realize that they could be saving more. You can have that amount automatically transferred each month into savings for your goals before you have a chance to spend it mindlessly.

Related: How to Live Rich on a Budget

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2. Blowing Your Raise

You just found out you’re getting a raise, so you start planning what you can do with a bigger paycheck. Most people think about what they would buy, said Josh Brein, a financial advisor and president of Brein Wealth Management in Bellevue, Wash. That’s a mistake, though, because your extra money will just go down the drain, he said.

“A lot of people ignore the fact that there’s a 401k available for them and ignore the fact that if they get pay raise, they can increase their contribution,” said Brein.

As your pay increases, you should increase the amount you’re setting aside in a 401k or workplace retirement plan. You also could use the extra money to boost savings for emergencies such as a car repair, medical expense or even a job loss.

You won’t miss the extra money because you’re already used to living on the amount you were paid. However, Brein said that you don’t have to funnel all of your raise toward savings. You can use a little to buy something nice for yourself as a reward for getting a pay bump.

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3. Tapping the ATM for Cash

Heading to the ATM to withdraw cash after you get paid can be a mistake if you feel like that money is burning a hole in your pocket.

“Cash in your pocket seems to get spent without necessarily thinking the purchase all the way through,” said Charles C. Scott, a financial advisor in Scottsdale, Ariz., and president of Pelleton Capital Management.

To avoid blowing all of your cash, Scott recommended hanging onto your ATM receipt and writing how you spent the cash on it. “Seem like too much work? Tough — be accountable,” he said. “You probably have a better place for your money to go.”

You also could be draining your account if you’re using ATMs that aren’t part of your financial institution’s network. The ATM operator will hit you with a fee of $1.50 to $3.50, according to a study by ValuePenguin. And, your bank might also charge a fee of $1.50 to $3.50 for withdrawing cash from an ATM outside of its network.

If you use a debit or credit card to pay for everything instead of cash — and pay the balance on your card — you can link those accounts to an app such as Mint that will help you track your spending and avoid exceeding your budget.

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4. Relying on Credit for Emergencies

Most likely — and hopefully — unexpected expenses don’t crop up in your life on a daily basis. But on any given day, you might face an expensive emergency.

Relying on credit to cover emergencies is a mistake, said Brein. Using a credit card to pay for emergencies can lead to debt, and you’ll end up paying more than the original cost of the unexpected expense because of the interest charged by the card company. And chances are, if you didn’t have enough cash to cover an emergency, you might have a hard time paying off your debt.

To avoid relying on credit, set up an emergency fund in a savings account with enough money to cover three to six months’ worth of expenses, said Brein. If your income isn’t steady because you work on commission or are a freelancer, you should have six to 12 months’ of expenses saved.

Make building an emergency fund a priority over saving for retirement, added Brein. You can do this, though, in the same way as you save for retirement by having a set amount automatically deposited from your paycheck into a savings account or transferred from checking to savings. Look for savings accounts with high rates, low fees and features to help you save.

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5. Dining Out Often

Payday might seem like a good day to go out to a restaurant with friends or family or hit up a happy hour with coworkers. But for many, eating out is a regular event. On average, Americans buy a meal or snack from a restaurant 5.8 times a week, according to the United States Healthful Food Council.

If you take a family of four out to dinner each week, “you’re going to spend $100 before you know it,” said Winkfield. “That’s $400 a month.”

Instead of dining out, Winkfield recommended having a family fun night. Invite others over for dinner and play games. “You build memories, and you have a lot more fun than waiting 30 minutes for a table,” he said.

Just make sure your savings from eating at home don’t go to waste. “You now have to turn around and save those actual dollars,” he said.

Watch: How to Eat Out and Still Save Money

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6. Giving in to the Temptation of Shopping Online

Thanks to the internet and online shopping sites, it’s easy to buy what you need or want at any time of the day. But, it also can become a habit that can hurt your finances.

A survey by e-commerce platform provider BigCommerce found that 96 percent of Americans spend an average of five hours per week purchasing things online. And about half of online shoppers said they have bought or spent more than they planned when shopping online, according to the survey.

Online shopping can be a mistake when you’re using it as retail therapy, said Scott. He said he has a friend who realized that she was buying things she didn’t need while shopping online, so she developed a process to combat her unnecessary spending.

“She goes through the fun of shopping and putting it in her shopping cart, which she has a tendency to load up,” said Scott. But, she deletes the contents of her shopping cart on the checkout page.

“She had the retail relief of the shopping experience — but the reality of not buying,” said Scott.

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7. Shuffling Credit Card Balances

Brein said he often sees people make what he calls the “credit card shuffle” mistake by transferring balances on high-interest cards to new cards with a zero-percent introductory rate. In theory, this strategy can help you save money on interest charges if you pay down your debt quickly before the zero-percent balance transfer period ends.

“Unfortunately, the theory of the credit card shuffle doesn’t always work out to be the reality of the situation,” said Brein. “I have found that many people begin spending extra on their new zero-percent interest card instead of paying it down as quickly as they can.” Brein also said he’s seen clients start using their old credit cards again — defeating the purpose of the balance transfer.

Brein recommended having only one or two credit cards open and active at any time.

“Any more than a couple cards could get you in hot water if your spending is not controlled,” he said. If you do transfer a balance, pay it off before the low balance-transfer rate ends.

Keep Reading: 10 Things You Should Never Put on a Credit Card

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