The New Year is the perfect time for a fresh start. If you’re setting big financial goals in 2018, don’t let the little things get in the way of your success. Whether you’re planning to get out of debt, saving for a down payment on a new home, or investing in the stock market for the first time, it's important to avoid any habits that will set you back financially.
Don’t let common financial mistakes stand in your way in 2018. We talked with Chantel Bonneau, a wealth management advisor at Northwestern Mutual, and Ryan McPherson, managing member of Intelligent Worth, who shared invaluable advice for kicking your bad money habits in the New Year.
1. Ignoring Your Credit Card Balance
It’s funny, we all know credit card debt can easily become a burden, and most aspire to stay debt free. Unfortunately, without a plan in place for keeping cards paid off, those balances can quickly rise.
“It’s easy to do,” said McPherson. “You charge a little bit here and there promising yourself that you'll pay it off at the month's end. Months later, after you've been paying just the minimums, you've got a credit card balance that'll stick with you for the remainder of the year.”
The real reasons ignoring your rising credit balance is such a big mistake? With the high-interest rates that come with so many cards, along with the potential for late fees and penalty rates, McPherson said he believes this habit could be toxic to your financial success in 2018.
“Go week-by-week,” he suggested. “At the end of each week, pay off whatever you’ve put on the card during that week. This prevents you from having a surprise balance at the end of the month.”
2. Spending Your Money Mindlessly
It doesn’t matter how much money you make, spending your money mindlessly can derail your financial goals. Everyone needs a good understanding of how they are spending their money, according to McPherson, who said that mindless spending is a sure way to set yourself up for failure in 2018.
“You don't necessarily need to stop spending, but you should be more mindful of where dollars are going, especially if you need to cut back,” he said. “Going forward into 2018, try to track or at least glance over your expenses weekly. This takes less than two minutes, and you'll have immediate spending feedback.”
And, for those who find themselves overwhelmed at the prospect of tracking what they are spending, Bonneau offers two pieces of advice. Those who are not prone to overspending may not need to be meticulous. Instead, she recommended setting a budget for the items you are mostly like to overspend on and then using that amount to inform your habits.
“Maybe you spend a lot on lunches at work and coffee. If that’s the case, potentially make a decision to only buy lunch and coffee three times a week and reduce your budget through simple changes,” she explained.
In the case that overspending is a crippling problem for you and tracking has been difficult to implement, she suggested using online tools, like Mint, that will keep track of what you are spending for you. Then, pay close attention to those totals while you work towards your goals.
3. Letting Finances Trash Your Relationships
If you’re married, 2018 is a great time to make sure you and your spouse are on the same page financially. If the two of you are still managing your finances separately, you just might be setting yourself up for financial struggles in the future.
“This structure inhibits coordination and communication – two essential ingredients for successful long-term financial management,” said McPherson. “Think of your family's finances – income, expenses, savings, and debt – as a unit, not the distinct items of two people. This will make discussing and handling money with your spouse easier.”
So, this year take the time to change the way you handle money in your relationships. Have your paychecks deposited into the same account, paying all household bills for that account. If you’d prefer to keep your spending money separate, McPherson suggested redirecting what you’ve budgeted for discretionary spending into accounts for each spouse, a new habit that will only take two months to get a handle on.
While you’re at it, Bonneau said that all couples should make sure they both have the same goals for their finances in the New Year.
“In relationships, sometimes each participant is speaking a different money language,” she said “Make sure you are on the same page in regard to what you are working toward. Many people take this step for granted, but it is key. Then work through how you can best accomplish it.”
And, if money is a touchy subject for you and your spouse, Chantel suggested bringing in a financial advisor as a neutral third party who can help guide a productive conversation.
4. Ignoring Your Credit Score
It easy to assume that as long as you are making your payments, you don't need to worry about your credit score. This assumption is a common mistake people make with their finances, but it can be detrimental to your financial success.
“Annually checking your credit report is a good idea,” McPherson said. “Visit AnnualCreditReport.com to request a copy of your report from each of the three credit reporting companies: Equifax, Experian, and TransUnion.”
Additionally, McPherson suggested taking things a step further to protect your score. Consider freezing your credit with Equifax, Experian, and TransUnion. Only unfreeze your credit when you’d like to apply for a loan or a credit card. Freezing your credit provides additional security, lowering the possibility that someone who has gotten ahold of your private information would be able to open a new account, according to the Federal Trade Commision.
5. Underestimating the Power of Automation
Keeping your finances healthy is hard enough, don’t make it harder than it needs to be by underestimating how useful automation can be. Once you’ve created goals for your finances in 2018, don’t wait to put it in action. Bonneau suggested using automation to turn your goals into a reality, saying that failure to implement good financial habits, like saving, is one of the most common mistakes she sees as a financial advisor.
“Put yourself in a situation to win,” she said. “Set up auto contributions to your 401k, savings account, credit card payment, etc… so that you can stay on track and make regular contributions to the strategies that you want to execute on.”
6. Failing to Call in Reinforcements
Lastly, it isn't uncommon for those who struggle to make progress financially to stubbornly insist on taking care of their money themselves. According to Bonneau, failing to ask for help managing money often makes is difficult to reach your financial goals.
“You go to a doctor when you are sick, you call an electrician when you need rewiring — don’t hesitate to call a financial planner,” she said. “Their sole job is to help you gain clarity on your goals and help you understand your options to accomplish those financial goals.”
Of course, it’s OK to want to handle your money yourself. It makes sense why so many prefer to believe they can reach their goals without help from an outside party. Unfortunately, although many people can figure out their finances out themselves, many can’t, according to Chantel.
“If you’re stuck in the research phase or don’t know where to start, it’s OK to ask for help.”