One of the most common problems people have with money is that they tend to remain uneducated about it. Money can be complicated, especially when you are dealing with debt, interest rates, fees and other complicated math issues. And let's be honest, the majority of us tried to leave math behind in school.
Money = Math
There is a reason that math is one of the most hated classes in school: It's hard. People don't like to do math when they don't have to. Sure, we can all do simple addition and subtraction without any issues, and we can even delve into a little bit of multiplication and division. The issues start when you get into complicated financial factors like interest rates, investment risk factors and the always-dreaded taxes.
The problem is that money involves math, so the better at math you are, the better you will be with money. People who can navigate the more complicated math problems of the money world end up saving hundreds, if not thousands, in fees, interest and taxes. So the big question is: Is being afraid of money costing you?
Most Common Money Mistakes Based on Fear
Not understanding how interest works: Interest rates are the most common ways that people throw away their money because they are afraid of math. They don't know their interest rate or even how it works, so they just ignore it. By doing that, you could be paying hundreds, if not thousands, in extra interest fees that you could easily avoid. Know your interest rate. Pay off your credit card bill entirely every month to avoid being charged interest. If you can't, find a way to lower your interest rate.
Not utilizing balance transfers: One way to avoid interest is by using a balance transfer credit card. Most people don't know how these cards work, so they avoid using them. In reality, these might be the simplest way to save you money on interest. It's a two-step process: One, get approved for a balance transfer credit card. Two, call the new credit card company and ask them to walk you through a balance transfer. Boom. Done. The best balance transfer credit cards offer a 0% intro APR for a year or more, so you have plenty of time to pay off your balance without being charged interest. Here's a good list of cards that offer a 0% intro APR.
Not investing in retirement: Retirement accounts like 401ks and IRAs are confusing to people, just like any major money mechanism. People tend to hold off on contributing to a 401k or setting up an IRA because they don't know how it works and are afraid it might be too complicated. These retirement accounts are not as complicated as you would think. Talk to you HR department to find someone who can walk you through the 401k process. Most investment firms and websites that handle IRAs also have experts on hand to help walk you through the best investment plan for you.
Paying off balances pre-maturely: People who are afraid of money generally try to pay off any debt they have as quickly as possible. In most cases, this is good, but if you have an installment loan (such as school loans, car loans, mortgages), you were charged the total amount of interest when the loan was approved, so it doesn't matter how quickly you pay it back, you will still owe the same amount. Instead, take the 5, 10 or 30 years stipulated to pay off the loan and put your extra savings in a high-yield savings account so you can make some money back while paying off the loan. You can also refinance the loan to lower the interest rate.
Not fixing your credit score: Your credit score is one of the most important financial factors, and amazingly, many people tend to ignore their score until it's time to buy a house or get a credit card. But not knowing your credit score can lead to paying higher interest rates on loans, credit card balances, etc. Make sure you are aware of what your score is, and if it's not an ideal score, figure out how to fix it. Pay off your credit card balances. Pay any accounts in collections. And most importantly, fix any errors on your credit report. If you don't want to go through the hassle of fixing your own errors, go through a credit repair service. Just make sure you pick a trustworthy service. This is a good list of the top credit repair services.
Not creating a budget: This is the most simple of all the money solutions, but many people avoid it because it involves a lot of math. Keeping a monthly budget will help you avoid making unnecessary purchases and will help you track where all your money is going. Still paying for that gym membership you signed up for last year and never use? A budget will help you identify places that you are wasting money and help you get on the right track to saving.
