15 Expensive Money Mistakes Americans Make—And How to Dodge Them
When it comes to money, do you practice good habits, or do you wish you had a better handle on your bank accounts? While some people may feel comfortable with their finances, even the most careful budgeters and shrewd investors can make mistakes from time to time.
Frequent money errors Americans make range from minor offenses, like making an impulse purchase, to major mistakes, like neglecting to save enough for retirement.
Review this list to learn about common money mistakes many Americans are guilty of making. Keep track of how many you’ve made and learn about ways you can improve your financial habits.
1: Overspending
If you’re guilty of exceeding your budget some months, you’re not alone. A NerdWallet survey, conducted by The Harris Poll, found that 83% of Americans report overspending, even if they have a budget.
Consistently overspending can be detrimental to your finances. Consider how much you spend on nonessential items each month to determine whether you can cut back anywhere.
2: High-Interest Debt
Using a credit card and paying it off each month can be a great way to improve your credit score. However, many Americans carry high-interest debt on their credit cards from month to month.
The average interest rate on credit cards is over 21%, and some cards have rates near 30%. If you only make minimum payments, it’s possible you may pay more in interest than the original balance.
3: Not Shopping Around
Many Americans fail to shop around when they need to borrow money. They take the first offer they get, which may come with higher interest rates or other downsides.
Whether you’re opening a credit card or getting a mortgage, shop around and get quotes before making a decision. Consider interest rates and other factors, such as credit limits and fees.
4: No Emergency Savings
Do you have an emergency savings account? When an appliance stops working, your car breaks down, or the dog gets sick, your emergency savings can allow you to handle these unexpected expenses.
Unfortunately, many Americans don’t have the funds to cover these costs. A recent survey found that only 44% of Americans can afford a $1,000 emergency expense.
5: Living Paycheck to Paycheck
It may not surprise you to learn that many Americans are feeling financially pinched. A CNBC poll shows about 65% of Americans currently live paycheck to paycheck.
If you’re struggling to make ends meet each month, focus on taking small steps to improve your situation. Set aside a small amount of your paycheck for an emergency fund and consider tackling your debt with a balance transfer card.
6: Impulse Purchases
While some Americans have limited expendable income, others struggle with impulse buying. Common impulse purchases include clothing, books, toys, takeout, and groceries.
Data shows this trend has lessened somewhat, but the average American still makes six impulse purchases each month, according to a Slickdeals poll. People impulsively spend an average of $151 per month.
7: Buying New Cars
Brand-new cars offer some perks, like the latest technology and that new-car smell. But Americans who purchase new cars may discover they’re not always a wise financial decision.
New cars are typically much more expensive than used vehicles, and they come with other costs, such as higher registration fees and sales taxes. Plus, most new cars depreciate 20% in the first year alone, quickly lowering their resale value.
8: Lack of a Budget
Without a budget, it’s tough to know where your money goes. Many Americans fail to make a budget, or they stray from their financial plans significantly.
If you have trouble budgeting, make it a priority to spend some time planning your finances. You can also use online resources or mobile apps to help you set goals and track your spending.
9: No Retirement Savings
Whether you’ve recently entered the workforce or you’re nearing retirement, it’s important to plan for your future. However, many Americans neglect or put off saving for their retirement.
Recent data shows nearly half of American households have no retirement savings in individual accounts, employer-sponsored accounts, or pensions. If you’re included in this number, aim to open an account and set up automatic contributions to begin building your nest egg.
10: Low Credit Score
Many Americans have good or even exceptional credit. But there are some who remain plagued by low credit scores, which can make it difficult to borrow money and secure favorable interest rates.
According to Experian data, nearly 13% of people have poor credit, defined as a credit score between 300 and 579. Nearly 16% have fair credit, with scores falling between 580 and 669. If you’re in these ranges, work to build your credit by paying down debt and making on-time payments.
11: Buying Too Much House
Some Americans are guilty of overspending on their homes. They may buy expensive homes with more space than they need, planning to grow their families or use the extra room for hobbies, collections, or storage.
For a while, financial experts have advised spending one-third of one’s income on housing. However, for people with other costly expenses, such as student loan payments or childcare, this ratio may be much too high.
12: Extravagant Holiday Spending
Americans often want to buy thoughtful and considerate gifts for their loved ones. But sometimes, these gifts come with exorbitant price tags, especially around the holidays.
Data shows Americans planned to spend an average of $923 on Christmas gifts in 2023. When you add up your holiday expenses each year, you may be surprised at how much you’re spending on gifts.
13: Underestimating Childcare
When planning to grow their families, many Americans underestimate the costs of childcare. It’s an increasingly expensive cost for working parents in the United States.
Childcare costs can vary widely depending on the number of children you have and where you live. According to U.S. Census data, average childcare costs equal between 8% and 19.3% of median family income per kid. In some states, childcare can exceed $20,000 per year.
14: Paying for Subscriptions
Be honest: Do you know how many subscriptions you pay for each month? Between streaming and music services, gym memberships, and subscription boxes, these costs can quickly balloon out of control, especially if you don’t use them.
Go through your monthly bills and identify subscriptions you pay for but don’t use. Eliminate these costs and put the money toward something else, like a travel fund or your emergency savings.
15: Not Investing
Investing can be a scary prospect for many Americans. Some fear losing their money in the stock market, while others feel overwhelmed by the different investment options available to them.
Investing, however, can allow you to grow your money and build your wealth. If you’re not sure how to get started, find online resources, take a course, or speak with a financial adviser about your options.
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