The article, 7 Money Mistakes We Make Every Day, at Yahoo Finance mentioned the following important points and here’s how we stack up:
1. Buying expensive mutual funds - My 401k is in the Vanguard 2035 mutual fund and our Roth IRA is in the Fidelity Freedom 2045 mutual fund. The expense ratios for these are 0.2% and 0.8% respectively. That is under the 1% limit suggested. Woot!
2. Neglecting credit scores – I just recently looked up our actual credit scores and I have checked our credit reports every 4 months for a while. You can actually check your score for free – really free – at Credit Karma and your reports at AnnualCreditReport.com.
3. Equating monthly payments with affordability – This is a mistake I see happen with friends and coworkers a bunch when it comes to cars. I try to keep in mind the total cost of things so everything is in the right perspective, but I will admit that things do seem enticing if they ”only” cost such-and-such a month.
4. Overpaying on a mortgage – The article was talking about the importance of refinancing when possible. We looked into refinancing, but with our rate of 5.375% and less than $75,000 left in principal, even the lower rates wouldn’t have saved us anything after we took into account closing costs. Oh well…
5. Missing good deals online – This sounds like they were encouraging spending, but they only meant to look at online prices for things you were going to buy anyway. Since I hate driving and love finding good deals, I pretty much do as much of our planned purchasing online as possible.
6. Overpaying taxes – This is always a controversial issue. During a normal year, hubby and I are within $200 of the target one way or another. While hubby has been in graduate school, we’re getting larger refunds. It will go back to normal next year.
7. Making minimum payments on credit cards – Yeah, this is a killer. We love using our rewards cards and paying them off in full every month…nothing sweeter than cash back on something we were going to buy anyway. The trick is making sure you still feel spending pain when using plastic. I always feel the hurt, so we don’t spend any more than we were anyway.
How do you stack up on these points? Anything you have mastered or need to work on?
We are doing pretty well in all of these areas. I have made sure all of our expense ratios are under 1.00% (I use ETFs as opposed to mutual funds).
I check our credit score at least once a year – you can do this for free on Quizzle.com but I think they only use one credit agency (not sure which one).
With the monthly payments issue we probably did overlook this when buying our second car. We only purchased our house two years ago and it has dropped in value quite a bit so I do not think we could refinance even if we wanted to since there wouldn’t be much equity.
I always check prices online – I LOVE Amazon!
Taxes – It seems like every year at least one of us (my wife and I) is changing jobs so it has been hard to stay consisten with this.
Minimum payments – since we pay off the balance each month that obviously is not a problem
Thanks. Credit Karma was new to me. I check our reports often, but our scores rarely.
I’ve definitely done #1 and #3 in the past. And sadly I’m still doing some investing in expensive mutual funds, because the funds available in our 401k aren’t as low cost as I would like.
1. Buying expensive mutual funds – Just did a blog post on how we messed up on this one… We will fix it before we get paid again!
2. Neglecting credit scores – Haven’t done this in over a year (since before we just refinanced). Need to pull those annual credit reports soonish.
3. Equating monthly payments with affordability – Never been a problem with us.
4. Overpaying on a mortgage – We did a free refinance to 5.5% (just missed a 5.25% rate because of a mess up on their end). We would have to pay 2K to go any lower and that doesn’t seem worth it if we keep pre-paying. We do have quite a bit more than 75K left though– kudos to you!
5. Missing good deals online – Consumersearch is our go-to site.
6. Overpaying taxes – Last year was the first time we got a refund, and then only because our tax situation was *weird*. We’re more in danger of underpaying, which is always a hassle.
7. Making minimum payments on credit cards – Would not dream of anything other than paying in full.
Rob, I hadn’t heard of Quizzle.com…cool! Credit Karma gives you your Transunion score I believe. Oh, and yes, Amazon is addictive. I just bought my hubby a Boogie Board LCD Writing Tablet for his grad school present despite the fact I was supposed to be on a self-imposed buying freeze…oh well, $35 to see him smile is worth a little out of my fun money.
Jackie, hey, I know I’ve probably fell for #3 a few times…luckily not on cars, but I’m betting that’s what happened with our Tempurpedic and bedroom set…
Jason, I just found out about Credit Karma while doing some credit score research for one of my husband’s coworkers…otherwise I would have no idea what my score was.
Nicole, I hadn’t heard of Consumersearch either! I have to check that out…it sounds like a post waiting to happen. Thanks!
#6 – I don’t have a problem with people getting tax refunds. Sure its not optimal but the only real loss is the interest you might make on the money. Short term interest rates aren’t all that much. A $2000 tax refund equates to about $10 in lost interest. You don’t want to under pay your taxes and I think overpaying a bit is really no big deal and people make too much of an issue out of this.
All very good tips, and #1 caught my eye in particular. Good for you that you guys are investing in funds with a low expense ratio. Personally, I think that’s the way to go. The returns, on average, of funds that have higher expense ratios don’t justify the those expenses at all in many cases. I’m a fan of low maintenance index funds for that reason.
Most of those are pretty good. I always question whether the tax overpayment thing should end up on these lists. It’s a difference of a couple bucks on what you could have done with the money throughout the year. Interest rates have savings and CDs at less than 2%. The “monthly payment” thing kills me with people we know where they trade in cars or buy other stuff based on the “low monthly payment”, but money is money (with interest). If something’s just a hundred bucks a month extra spread over a 30 year mortgage, that’s a heck of a lot of money!
1. Buying expensive mutual funds – I’ve always done pretty good here… I wonder if anyone even sells one that have loads anymore?
2. Neglecting credit scores – I’m over 800 the last I check. Rock solid here!
3. Equating monthly payments with affordability – I took a loan once for too long of a period, but my next car will hopefully be used and with cash on hand
4. Overpaying on a mortgage – I was pretty competitive here. Except for the builders loan for our house that we built new. Big mistake…
5. Missing good deals online – I’m very week here… I miss too many deals!
6. Overpaying taxes – Now that I have an extra cushion for taxes, I might do this a bit better so that Uncle Sam doesn’t pay me back thousands in refunds every year…
7. Making minimum payments on credit cards – I’ve always paid my cards off when they charge interest (I had a best buy card that didn’t charge interest for the first 12 months once…)
“Overpaying Taxes” and getting “Online deals” is my weakness…
I love CreditKarma! Of course, it gives me just one more thing to obsess over, my credit score. These are some great tips. I think the mistake I’ve made in the past is looking at the low monthly payment. Now I’m much wiser and I look at the whole enchilada! Amortization calculators are also really helpful, they are actually quite frightening really. So anyone still only looking at monthly payments or paying minimum payments on credit cards really needs to check out an amortization chart, it’s an eye-opener.
I’d just like to reemphasize point number 7! I just talked to a coworker who is doing this and despite talkign his ear off, he will continue to pay the minimums.. I JUST DONT GET IT!!! Do people LIKE giving their money away to CC companies?! Man it’s frustrating!:)
#6..I love my tax refunds. In fact, I love things that feel like windfalls that really aren’t.
Things like Tax refunds, Cash Back Checks, Getting reimbursed for Health or daycare spending. Our Windfalls either go to extra mortgage payments or a house project. Love that cash!
jim, I agree with you. You rather overpay your taxes than underpay, and overpaying isn’t the end of the world. I just rather not let them keep more of my money than necessary.
Squirrelers, you are the second or third blogger I know that invests in index funds. I threw that idea out to hubby, but he really prefers the high dividend stocks…my best guess is that he likes the thrill of picking winners (we’ll not mention the losers), but don’t tell him I said that, lol.
Darwin’s Money, yep, the monthly payment one is the most cringe-worthy…it’s worse when you’ve actually justified something because of it…
Yep, the tax overpayment isn’t the worst thing ever. I rather make the interest myself, but I can think of a ton of better money-making/saving ideas…
Money Reasons, over 800 is stellar! Mr. BFS was sad that his credit score is 20 points lower than mine, but we’re both rated Excellent, so I just shook my head…whiner.
It’s because most of our consumer debt was in his name (his car and our bedroom furniture)…now that both of those have been paid in full, his score should go up a little as well.
Hey, if you’re biggest problems are missing “deals” that you probably didn’t really need anyway and overpaying your taxes, you are doing damn well in my book!
Little House, I love amortization calcs!!! It’s great to scare yourself out of making a mistake and to motivate yourself to invest/save more! I usually use the ones at http://www.hsh.com.
I’m sad that my wife has me beat by 20 points.
It probably has something to do with her truck being paid off, while I’m still making payments. And the only credit card we have left is in my name.
myfinancialobjectives, did he say why he was happy just paying the minimums (building up debt and paying tons in interest)? Maybe his plan is to never pay off the accounts, so he thinks he’s sticking it to “the man”. It’s sad, but I know people who have made this their long-term plan…
Sandy L, you are living proof that overpaying your taxes isn’t a bad idea for everyone. I like the little thrill of getting rebate checks, so I can understand how a big tax refund could feel pretty dang good even if it costs $10 in interest. $10 is a small price to pay if you enjoy the outcome.
Jason, it’s probably the car payments. All our main credit cards are in my name and my car is paid off. Now that Mr. BFS will show a ton of available credit and no car payment, his score should come up to meet mine within the next 6 months…we’ll see how long he can go without wanting a new car…
The one credit card we have left has a balance that I find embarrassing. It’s firmly into 5 digits.
Jason, yeah, okay, I could see where that could affect your score a little in a bad way. Sorry. Based on what you write about though, you’ll have it paid off pretty quick. You’ve definitely adopted a financially stable perspective with a solid goal in mind, so WOOT for progress!
BTW, love your blog!
Equating monthly payments with affordability – This is the problem with ALL of my clients! and a mistake i’ve made myself.
I see it in the advertising as well, that sh$5s me the most, when they don’t show the cost just the monthly payment. I’ve even seen it expressed as a Daily payment. For $1 a day etc
Benjamin Bankruptcy, I know! “For just 80 cents a day, this magic widget can be yours!”. It better be magic for $292 a year!
Thanks for sharing these money mistakes. I would like to add some more which are: impulsive spending, trapping in sale traps, not having a savings plan and not tracking the finances.
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