When’s the last time you took a financial literacy test? Do you remember how you scored? Have you ever even heard of a financial literacy test?!
Chances are probably pretty low that you answered “yes” to any of those questions. With everything that needs to be covered in our school curriculum, it can be difficult to have the focus that’s needed on financial literacy education. So, while some schools are doing a terrific job of incorporating this, we’re happy to help supplement that education — as a matter of fact, education is one of the cooperative principles we’re founded on! Here’s a list of 5 common money-handling mistakes and how to fix them.
1. Spending more money than you earn. Spending more than you earn means that you’ll never, ever be able to save money. In fact, usually it means you’re driving yourself down the road called debt. Using things like short term loans or credit cards may seem like they help you get out of a pinch, but they won’t help your problems if you continue to spend more than you bring in.
The Fix: Save a portion of your income each month, no matter how small, so you have it for an emergency.
2. Not saving the minute you have an income. Compound interest is the number one benefit of long term savings. The earlier you start, the less you need to save because compounded interest will help grow your savings.
The Fix: START IMMEDIATELY. If you’re a little older, you’ll have to save a larger amount each month to make up for the lost compounded interest.
3. Putting all of your money into a low interest savings account or CD. High risk equals high rewards. If you invest some money in the stock market, you’ll usually make more in the long term than if you’d put it in a savings account.
The Fix: If you have money in your savings that you can spare, visit a financial advisor to learn where to invest it. However, stock earnings can go WAY up and WAY down. These swings can occur at any time, so make sure you’re in the investment for the long haul.
4. Putting all your eggs in one basket. If you have all of your funds in one account like a savings, CD, or bond, you’re limited to what that particular vehicle can earn.
The Fix: You need to diversify your funds. As mentioned, a financial advisor may suggest you put some funds into the stock market and some in bonds or an index fund. That way, if you lose money in the market, you still have some funds with a stable rate to fall back on. Ask your advisor to see how to allocate your funds more effectively.
5. Getting scammed! Scam artists and identity thieves do exist. Even if it hasn’t happened to you, beware.
The Fix: Make sure you are cautious and do some research when you see a deal that appears to be too good to be true. Monitor your accounts monthly, especially your credit card statements. If something seems amiss, contact your credit card company or your financial institution for information on what to do.
Keep your eyes out for part 2 of this blog. We have five more common mistakes and 5 more tips on how to fix them!