When it comes to money, it’s easy to get into hot water. Everywhere you look, ads are encouraging you to buy, buy, buy, even as your bank account is saying “no, no, no.” But splurging on a new pair of shoes and forgetting to set up a 401(k) have far different implications. Here are seven avoidable financial decisions with long-term consequences:
1. TAKING ON CREDIT CARD DEBT
Almost all financial experts recommend paying off your full credit card statement balance each month, because getting into credit card debt will cost you far more than whatever you bought in the first place. For one thing, credit card interest is charged every day. Say you have a 16 percent interest rate on your credit card and a $1500 bill. If you only pay off $150 each month, even if you don’t spend any more money, it’ll take you 11 months to pay off your bill, and you’ll end up paying $121 just in interest over that time period. While it’s tough to foresee circumstances like huge medical bills, for regular spending, aim to limit the amount you fork over to what you can actually afford. That said: If you can afford to use your credit card, don’t hesitate to break it out for everyday expenses. Regular, responsible credit use—that is, credit that you pay back in a timely fashion—will show banks and other lenders that you’re a reliable borrower.
When you’re young, it’s easy to assume there’s plenty of time to save for retirement, and you don’t need to start just yet. But thanks to compound interest, it’s better to funnel a small amount into your paycheck at 25 years old, 40 years before you retire, than to contribute a lot 10 years before you retire. The interest on your account means that your small contributions will grow year over year, making it beneficial to save for as long as possible. And if your employer provides matching contributions, save as much as possible to meet those requirements—that’s free money.
3. LETTING YOUR SAVINGS ACCOUNT DWINDLE
Experts recommend keeping at least three to nine months of living expenses tucked away in an emergency fund in case you lose your job, have an unexpected medical emergency, or find yourself dealing with similar unforeseen expenses. But there seems to be a substantial gap between the recommendation and what people actually do. One 2014 Federal Reserve report found that 47…