In the larger picture, it may not matter much which financial choices you make. Your family’s visit could cause you to go over your grocery budget. Getting back on course after a detour is simple. However, some can do extensive harm and cost you thousands of dollars to repair.
There are several potential threats to your financial security as the new year begins. The ones you should be wary of are listed below.
ADHERING TO SUBPAR FINANCIAL PRODUCTS
As of December 19, 2022, the Federal Deposit Insurance Corporation reports an average savings account rate of 0.30%. (FDIC). On the other hand, the interest rate offered by certain high-yield savings accounts can be 3.5% or more—more than ten times the rate offered by the average savings account.
But only around a quarter of all individuals use high-yield savings accounts. Everyone else is content with mediocrity, although they are passing on significant interest earnings. With an emergency fund of $15,000 stashed away in a savings account, the interest rate differential may amount to more than $500 annually.
This is only one way you might lose money if you don’t look around for the most advantageous financial items. Other examples include:
Highest Payouts The cash-back percentage offered by credit cards ranges from 1.5% to 2%. You might potentially save hundreds of dollars annually.
Depending on the type of investment fund, management fees might cost anywhere from 0.25% to over 1%. By choosing the right fund, hundreds of thousands of dollars can be saved in fees over time.
An annual premium of $2,785 is the average for car insurance. Shopping around for a better rate regularly may save you hundreds of dollars annually.
We all struggle with the urge to put things off until later. In high school, procrastination is the norm, whether it be about writing a report or studying for an exam. Many people struggle with procrastination in the adult world while attempting to establish better financial routines. You could put off saving money every month, making contributions to a 401(k) plan your company provides or investing in a brokerage account.
If you merely can’t afford it right now, that’s understandable. Yet even individuals who are in a position to do so sometimes convince themselves, “I’ll do it later,” despite having the necessary funds.
The issue, of course, is that “later” is perpetually postponed. You should start doing things immediately if you know they will help you financially.
SPENDING MONEY IN A WASTEFUL MANNER
You may greatly influence your financial future by changing your spending patterns. Wasting money makes saving hard.
That said, it’s not necessary to deny oneself any pleasure to save money. Expenditure of money on items that don’t add value to your life is known as “wasteful spending.” Don’t buy something just because it’s on sale. One more frequent example is subscribing to a monthly service but never utilizing it.
You can take some effective measures to address this problem. First, decide how much your salary will go toward “extras” like entertainment and dining out. By setting and maintaining a budget, you may avoid spending more than you have available.
It’s also helpful to plan out your financial goals. When you have a clear idea of what purchases can enhance your life, you’re less likely to waste money on frivolous purchases.
DEBT INCURRED VIA CREDIT CARDS.
There are several reasons why credit card debt is so risky. Credit card debt is notoriously simple to accumulate. They allow you to charge anything you want, up to your credit limit, even if that’s a lot more than you can afford to pay back. There is no deadline to repay what you owe; you simply need to make low minimum payments to keep the account current.
The true killer, though, is interest on credit cards. Almost all credit cards have exorbitant interest rates; several have annual percentage rates of 18% or more.
A typical credit card balance in 2021 was $5,221. Spreading the payment over 24 months with an 18% annual percentage rate would result in an interest charge of $1,035 per month.
The absence of any credit card debt is a major accomplishment; figures like those should serve as inspiration to maintain making complete monthly payments. Furthermore, if paying off your credit card balances is a priority for you in 2023, then make it a resolution of yours. Spend some time doing the math and thinking about ways to refinance your debt and save money, including using a balance transfer credit card.
These are typical issues that may arise in 2023 and prevent you from reaching your financial objectives. You may now take precautions to prevent them or address any that are already causing you financial hardship by virtue of your newfound knowledge.