5 monthly money-management mistakes to avoid
We complete numerous financial tasks each month. While we often focus on larger milestones — paying for college, buying a home, saving for retirement, etc. — it’s often the smaller, recurring tasks that can have the most substantial impact on our long-term financial future. Some of these tasks can be automated, like paying for your various monthly subscriptions or contributing to your retirement account, but others require you to have a plan and take action.
Through our experience working with clients to realize their WHY, the Elevage Partners team has identified some common monthly money-management mistakes that, when made repeatedly, can jeopardize your financial health. We delve into five of them here.
1. Disregarding Your Budget
The Mistake: Most understand the importance of creating a budget, but sticking to it is often another challenge entirely.
The Impact: Your budget is the foundation of your financial plan. It dictates how much you can spend, what you can spend on, and how much you can set aside each month for savings. Failing to abide by the parameters you’ve set can have a ripple effect on the rest of your financial plan, potentially causing you to delay longer-term goals like loan repayment or retirement savings.
The Solution: Regularly review your budget and make adjustments as necessary. Ensure you have a realistic view of your costs and that you’re earmarking funds for savings and essential expenditures while leaving some room for discretionary spending. One of our advisors can help you set a budget that works for you.
2. Skipping Retirement Contributions
The Mistake: Some view retirement savings as optional on a month-to-month basis, thinking they can always start later or catch up.
The Impact: Delaying contributions can mean missing out on compound interest, employer matches, and exclusive tax benefits. There’s a limit to how much you can contribute to your retirement accounts each year, so once you fall behind, it can be difficult to catch up. Delaying retirement contributions can mean delaying your retirement goals.
The Solution: Start contributing as early and consistently as possible. Even if it’s a small amount initially, regular contributions to retirement accounts can accumulate significantly over time as your investments compound. If you use a 401(k), you can have contributions deducted automatically from each paycheck.
3. Not Prioritizing Your Debt Wisely
The Mistake: Some treat all types of debt equally or prioritize them based on the amount of debt rather than the interest rate or the other terms of the contract.
The Impact: Not all forms of debt are created equal. High-interest debts can grow rapidly and failing to address them proactively can result in a significant portion of your income getting tied up. This can keep you from pursuing your other long-term financial goals. Remember: the longer it takes to pay off your debt balances, the more you’ll ultimately have to pay in interest over the life of the loan.
The Solution: Come up with a plan for paying off your debts. The “avalanche” method entails paying off your highest-interest debt first, such as your credit card and personal loan balances. The “snowball” method involves paying off smaller debts to gain momentum. Beyond the financial benefit, addressing debts can also alleviate emotional stress and bolster your credit score, which plays a crucial role in your future borrowing capacity. An Elevage advisor can work with you to prioritize your debt.
4. Losing Track of Recurring Charges
The Mistake: Given the prevalence of subscription services and auto-renewals, it’s easier than ever to lose track of your various monthly charges.
The Impact: Similar to outstanding debt balances, these unnoticed charges can eat into your purchasing power each month and limit how much you’re able to put toward your other financial goals.
The Solution: Regularly review your bank and credit card statements, being careful to note all recurring charges and evaluate their necessity. Cancel redundant or unneeded services, and consider setting reminders for subscription renewal dates to reassess their value.
5. Avoiding Regular Maintenance
The Mistake: Whether it’s your vehicle, your home, or your health, neglecting routine maintenance and check-ups can feel like a money-saving decision in the short term.
The Impact: In the long run, small problems can turn into costly repairs or replacements. For instance, avoiding routine oil changes can lead to significant car issues, and neglecting annual health check-ups can result in severe health complications. These expenses can be significant and pop up without warning, potentially imposing a financial burden on your family.
The Solution: Don’t delay maintenance. Allocate a portion of your budget for regular upkeep. It’s an investment in your future that prevents potentially larger, more expensive issues.
Improve Your Financial Routine
Our financial futures are shaped not just by the big choices we make but by the myriad of smaller ones we make each and every month. Having a clear sense of your priorities, which involves constantly weighing your short-term goals against your long-term ones, can help ensure you maintain a positive financial trajectory. In the world of personal finance, discipline and mindfulness are among your strongest allies.
Avoiding these common mistakes is a good starting point, but your month-to-month financial routine will be a function of your individual goals and circumstances. An Elevage Partners advisor can work with you to craft a strategy that aligns with your specific situation.
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