Avoid These 3 Big Money Mistakes in 2016
By STACY FRANCIS
Jan. 11, 2016 8:00 AM ET
Financial success doesn’t just happen — you have to work at it. You may think that you are pretty money savvy; however, even the most fiscally successful individuals tend to be guilty of making these three big money mistakes.
1. Not having a goal and a plan for how to achieve it. Without a plan or goal, you will lack focus and end up spending more money. A dollar here, a dollar there might not seem like a lot at first, but not knowing where your money is going or what your expenditures are can greatly affect your financial security.
To create a goal that you will actually stick to this year, concentrate on reducing three of your largest expense categories and attempt to whittle those down.
The key is to make any goal a habit first. And most important, make it a tiny one. By focusing on reducing just a few areas of overspending, you will be less likely to feel deprived and more likely to stick with your goals in the long run.
For example, you may spend the most money each month on eating out, entertainment or shopping. Focus on reducing each of those three categories by 10 percent to 20 percent over the first six months of 2016. This could mean bringing your lunch to work a few extra days per week or replacing one of your nights out on the town with a get-together at your house instead.
Also, be careful not to change your lifestyle too drastically right away. Your goal should be to reduce expenses gradually over time in order to change your long-term behavior. So start small and go from there. This means eating out only one time less in January, or if you tend to buy lunch every day, aim to bring your lunch from home just one or two times in the first few weeks.
2. Only one person in the family knows where the money goes. Most families have one person who’s largely in control of managing the money — and that’s fine. The problem occurs when this leads to financial atrophy in the family, where no one but the person holding the checkbook knows where the money goes or is involved in the decision-making process.
If you are not part of the bill-paying, investment decision-making and retirement-savings process, you’re at risk if your spouse dies, becomes seriously ill or if you get a divorce. Know the details of your family’s finances, spending, investments, debts, savings, etc.
Have monthly meetings about your financial situation so everyone is “in the know.” These meetings don’t need to be onerous. Sit down with your family to review the balances on all of your accounts, review your rate of savings relative to your income, and discuss if anything needs to be tweaked.
There are numerous benefits to sitting down as a family to review account balances and savings rates together, the most basic of which is that everyone in your family will now be aware of what accounts are out there.
Knowledge is power. Laying all the cards on the table is a powerful way of fostering financial peace of mind among all family members. Coming together as a family to review the family budget not only encourages discussion of finances, in general, but creates strong awareness and mindfulness around spending and saving, which can have a powerful impact on the bottom line.
Finally, family finance meetings have the added benefit of fostering healthy communication and teamwork among all family members and can teach younger members important financial principles that will benefit them throughout their lives.
Be sure you know where all important documents are stored. Examples include tax records; statements for all retirement, checking, savings and brokerage accounts; insurance policies; wills; deeds; mortgages and auto titles.
Know the passwords to important financial websites, such as your checking, credit card and investment accounts. When tax season comes around, get involved in the process and help collect the tax documents your accountant needs to complete your return.