avoid these critical financial mistakesWith 2018 coming to a close, now is the time to review New Year’s resolutions and prepare to implement them. For many individuals, financial goals are likely to be at the top of their resolutions list, but whether or not you already have financial plans in place for 2019, coming changes to the economy mean that you should seriously consider making adjustments to your finances. Before you start planning for your financial changes to come, you’ll want to make sure you’re not making any of the following financial mistakes.

Not taking advantage of changing interest rates

We’ve already talked about the Federal Reserve’s plan to raise interest rates and what you need to do to financially position yourself to benefit from this economic change, but this issue is so important that we wanted to highlight it again. Rising interest rates means higher APYs for bank depositors and higher interest for borrowers, so anything you can do now to increase your savings account balance and decrease your debt would serve to optimize your finances for the next year. Additionally, you can consider keeping an eye on certificate of deposit offerings, as they’re set to rise in tandem with interest rates. If you’re wondering where exactly you can find growing savings account APYs in this stagnant environment for savers, we have a comparative review of two of the highest earning online savings accounts around, CIT Bank and Discover Bank. On top of that, if you’re in the market for a loan, applying for fixed-rate loans before interest rates go up might make sense, as you can lock in a lower interest rate.

Failing to budget

Not budgeting is one of the fatal flaws that kills the momentum needed to make meaningful financial change. That’s because budgeting is the only way to know exactly how your money is being managed and observe which of your spending changes are effective. Making financial changes without budgeting is like traveling down an unfamiliar road at night without GPS or headlights — while it’s possible, it’s an unnecessary risk that makes things less safe and more difficult than they otherwise need to be. We’ve covered the basics of budgeting several times before, but here are the important points:

  • Track your spending. You can do this with the tools provided by your bank or credit card, as many banking websites record and categorize your expenses. If you so choose, you can also export this data to third-party programs designed to help with budgeting and financial goals. Some individuals, however, swear by doing things the old-fashioned way and manually importing their expenses into a program like Microsoft Excel. Regardless of how you do it, tracking your spending is an important aspect of budgeting because it’ll help you decide what spending habits need to be adjusted in order to save more. You’ll also be able to identify the expenses that you probably shouldn’t be spending money on, like your morning cup of coffee, which brings us to our next point.
  • Build an acceptable income-to-spending ratio. Once you’ve tracked your spending, you can look for patterns. The observations you make should help you decide what you need to do in order to meet your goal. Excessive monthly purchases on luxury items might be a habit you can identify and eliminate, for example. But even spending on necessities can be optimized. Not sure what you should be spending? Do some research on what a household at your current size spends in a category like food or entertainment so you can gain an understanding of what’s achievable and work toward it in your own budgeting.
  • Adjust as necessary. Budgeting requires a lot of give and take because it’ll take some time to learn what works for you. As such, it’s best to start small (make minor adjustments) and decrease your spending over time, as cutting expenses back too much from the get-go may cause you to fail. While this means you’ll have to continuously update your budget, you may find more success in the long run. Also, remember that even if your expenses in one or two categories aren’t exactly where you want them to be, it doesn’t mean you’re failing. As long as you’re working toward your long-term goals and making changes, your financial health can improve.

No plan for your debts

Although we didn’t include this in the previous section, it’s essential for you to include your existing debts in your budget and have a plan for paying them down or off. Paying the minimum on debts, or avoiding payments entirely, is not a viable strategy for your long-term financial wellbeing. Budgeting should allow you to make adjustments to your spending which, in turn, will make it much easier to set payments above your monthly minimum. How far above your minimums you decide to pay will be determined by the payoff goals you set for your debts and how much you can afford. If you’re trying to save money and manage your debt, you’ll need to evaluate your situation and determine where your priorities should lie.

If your debt is too much to handle, remember that you can consolidate it via balance transfer credit cards or loans. If you refinance your existing debt, you may be able to pay off the balance at a lower interest rate, saving you money in the long run.

Not using credit

For better or worse, credit serves as the foundation for personal finance in today’s world. Individuals with good credit aren’t just given lower rates on loans and credit cards. Insurance premiums and even the pricing for other services are affected by credit as well. The truth is that credit touches many aspects of our lives, and life is typically easier and cheaper for those who have good credit — something you can’t achieve if you avoid credit altogether. That’s why you should take every opportunity you get to maintain or improve your credit. Luckily, we have tips that’ll help you with your credit health, regardless of where your scores currently are.

  • If you don’t have any credit. Building credit from scratch can be difficult, as you aren’t a lender’s ideal candidate. At the same time, without borrowing you can’t build your credit. That’s where secured credit cards come in. These cards are available to individuals with low and limited credit, and since most of them report to all three credit bureaus, cardholders are able to build credit rather quickly (with responsible use of the card). Secured cards do require a security deposit to establish and open the credit line (the issuer will use this if you default on payments), but the deposit will be refunded when you close the account, assuming it hasn’t already been used to cover your debt. Other financial options like credit builder loans or becoming an authorized user on a credit card account might also help to build your credit in some circumstances. Regardless of what methods you use to build your credit, remember the importance of making timely payments, as failing to keep up with payments can have a serious impact on your credit.
  • If your credit score needs improvement. Those who have an established credit history, but its less than stellar, can also take steps to turn their credit scores around. You should first make sure that you have no major credit report errors on your file. You can do this by requesting your annual free credit reports from the three major credit bureaus. If you’ve already exhausted this option, there are other circumstances that can entitle you to additional free copies of your reports, but a credit monitoring or identity theft protection service might be the best and easiest way for you to get an additional copy of your credit reports. If credit report errors aren’t what’s affecting your credit, then other issues like a high credit utilization (which can be caused by using a lot of your credit at once and paying it off very slowly) or having a very young credit history can stifle your credit scores. Generally speaking, good credit can be achieved by only using your credit card for purchases that you know you can afford. That way you can pay off the balance in full every month, show your issuer you’re responsible and avoid falling into debt.

Now that you understand the financial mistakes you should avoid, you can start building your financial goals for the new year. For more information on improving your finances, keep reading our personal finance blog.