It seems one of the biggest problems is that many Americans are still struggling with basic money management. Most employees do not have an emergency fund, 42% are uncomfortable with the amount of debt they have, and 1/3 don’t have enough of a handle on their cash flow to spend less than they make each month. It’s hard to save adequately for retirement when you’re living paycheck to paycheck and struggling with debt.
Getting a big tax refund each year: This is a sign that you may be having too much tax withheld from your paychecks. If this is the only way you’re able to save, it’s certainly better than nothing (assuming that you actually save that money or use it to pay down debt, of course). The problem is that it’s not exactly the most efficient way to save. Not only are you losing the ability to earn anything on that interest-free loan but you also lose access to that money in the event of an emergency. If you tend to get a large refund this IRS calculator can help you determine how to properly fill out your Form W-4. Just be sure to have any extra money in your paycheck set aside in case you do have an emergency. Forced saving is better than no saving at all.
Having only a rough idea in your head of where your money goes: As they say, you can’t manage what you don’t measure. One option is to go through at least 3 months worth of previous statements and record your expenses by category on an Excel spreadsheet. Another method is to use a site like Mint.com or Yodlee MoneyCenter to track your spending online for free. Both sites also have Apple and Android apps to help you manage your money on the go. Neither approach is necessarily better so just choose the one that you’re more likely to actually use.
Forgetting those non-monthly expenses: Some of the largest sources of credit card debt are holidays and vacations. You can easily turn them into monthly expenses by dividing the amount you typically spend each year by 12. You can then have those monthly amounts automatically set aside each month so the money will be there when you need it. While you won’t earn a whole lot at today’s interest rates, it still beats paying interest on credit card debt.
Spending more than you really need to: Once you know how much you’re spending and where your money is really going, think of ways to reduce some of those expenses. After all, regardless of how much you make, don’t forget that plenty of people are living on less so you can too.
Paying a little extra on all your credit card debt: That’s certainly better than not making any extra payments or not even paying your bill in full. However, you can pay your debt off faster by putting all the extra money towards the debt with the highest interest rate and making just the minimum payments on the rest. As one balance is paid off, you’d then put those payments towards the remaining card with the highest rate until you’re debt free.
Andro Ferraro 