Avoid These Financial Decisions

By Mitchell J. Smilowitz, CPA

We all make bad financial decisions – small ones like impulse purchases as well as bigger ones like racking up high-interest credit card debt. It can be daunting to address these problems and reverse the cycle. This article discusses 9 bad financial decisions people commonly make – and how to address them.

1. Excessive and Frivolous Spending

Fortunes can be lost one dollar at a time. It may not seem like a big deal when you pick up that double-mocha cappuccino or have dinner out or order that pay-per-view movie, but these items add up.

Just $25 per week spent on dining out costs you $1,300 per year. If you contributed this amount to your JRB Retirement account for five years – assuming even a modest 5% growth rate – you’d have over $7,500. Contributing this amount also makes you eligible for the JRB Complimentary Insurance Program. The Program includes free life insurance, disability insurance and pension continuation insurance.

2. Not Managing Subscriptions and Other Never-Ending Payments

Do you really need all of the items you pay for every month? Multiple streaming services, food delivery services, or high-end gym memberships force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, create a leaner lifestyle to build your savings and cushion yourself from financial hardship.

3. Living Off Borrowed Money

Using credit cards has become common and easy – just hold your card or phone next to the reader at the gas station, supermarket or coffee shop to complete your transaction. But not paying off your balance each month exposes you to very high interest rates (according to research by LendingTree, the median rate of interest across all credit cards in June 2024 was 24.8%). If you carry credit card debt, many of the items you purchase will be gone long before the bill is paid in full. Using credit cards makes it easy to spend more than you earn.

Avoid this by reminding yourself that credit is actually debt and the available balance on your credit card isn’t real money! It’s money you are borrowing and will have to pay back – often at very high rates of interest.

4. Spending Too Much on Housing

The National Foundation for Credit Counseling recommends that housing costs not exceed 30% of your gross income. This includes property taxes, maintenance and utilities. Before you buy or rent a home, make sure you consider the carrying and operating costs in addition to your monthly rent or mortgage payment.

5. Not Investing Enough for Retirement

When prioritizing their expenses, many people leave retirement contributions to last because retirement may be years away. But, waiting until you are nearing retirement to ramp up savings may not give you sufficient time to generate the resources to attain a financially secure retirement.

Pay yourself first! Automate your retirement contributions through a salary reduction program such as the JRB Retirement Plan. Aim to save 10-20% of your monthly income. If even 10% seems like a stretch, start with what you can afford and commit to increasing your savings-rate by 1% each year. If you coordinate this increase with your annual raise, you won’t notice it in your day-to-day life.

Take advantage of the JRB’s Complimentary Financial Consultation to understand the resources you’ll need for the retirement you want, the time your investments will have to grow and how much risk you can tolerate.

6. Not Having a Plan

Your financial future depends on what is going on right now. Take some of the time you spend watching TV or scrolling through your phone to review your finances. This goes beyond the timely paying of bills to track your progress toward your financial goals.  Make it a priority to spend time planning and reviewing your finances.

Budgets are a great way to improve your finances, but, if you make a budget and don’t follow it, your future self pays for it. Not following a budget can lead to a lack of funds for emergencies, being unable to retire when you want to, feeling overwhelmed by debt and more. To avoid this, create a budget and stick to it.

7. Not checking-in on your progress

Checking in on your goals is a must. It could be as simple as creating a schedule to check in on your short- and long-term goals. One great way to do this is to use a planner. A goal planner can keep you motivated and focused.

8. Not celebrating success

It’s easy to think that you should only celebrate the big things or forget to reward yourself for your progress. But even small successes are valuable. Celebrate all victories, no matter how big or small. Not everything you do will result in massive strides, but it all adds up and gets you closer to where you want to be. Acknowledging success and rewarding yourself will motivate you to continue your efforts.

9. Not getting back up after you slip

Slip-ups will happen. Give yourself the grace to recognize your error or mistake, remember why you are putting in the effort and get back to work!

You are not the first or last to make an unwise financial decision; the important thing is the progress you make over time. One slip-up doesn’t make or break your money goals – your daily habits are what matter most. The worst thing you can do after a mistake is give up.

Conclusion

You can make bad financial decisions – all of us do – but you can also take action to reverse these decisions. You are not on your own! Contact the JRB or call 888-JRB-FREE (572-3733) for a free financial consultation and get yourself on the road to financial security.

June 2024