14 Banking Habits That Are Costing You Big Time
Banking plays an integral role in our daily lives, from swiping our cards at the grocery store to receiving a direct deposit from our employer.
While banking can be a convenient and helpful tool for managing our finances, certain banking mistakes can seriously impact our financial well-being.
14 Ways You Could Be Sabotaging Your Finances
Your bank account is the gateway to your financial life. How you manage it can determine whether you're able to save for the future, handle unexpected expenses, and achieve your monetary goals. Avoid these fourteen common banking mistakes to keep your finances in order.
1. Not Monitoring Your Accounts Regularly
It's easy to go weeks or months without thoroughly checking your bank and credit card statements. However, not monitoring your accounts regularly can allow errors, fraudulent charges, and overdraft fees to go unnoticed.
Get into the habit of reviewing transactions and balances at least once per week. Set up account alerts for key events like low balances. Being vigilant protects your money.
2. Failing to Shop Around for Better Deals
Many people stick with the same bank, credit card, and insurance providers for years. Financial institutions count on customer inertia. Shake things up by comparing deals every one to two years.
Shopping around could unlock big savings. Higher-yielding savings accounts and lower-cost loans and cards at other institutions can equal thousands of dollars in extra cash over time. Even minor rate differences compound.
3. Not Having an Emergency Fund
A lack of emergency savings sinks many Americans into debt when urgent costs pop up. Bankrate found over a quarter have no reserves. Begin amassing a 3-6 month living expense fund in an FDIC-insured, high-interest account. This nest egg means you can tap cash, not credit cards or payday loans when crises hit.
4. Using Bank Overdraft Protection
Opting into overdraft protection seems like a good idea. Who wouldn't want their transactions covered when they slip up? However, banks charge fees of up to $35 per overdraft.
For example, these fees can rapidly multiply if several charges hit your account before your next paycheck. Decline overdraft protection and link your checking account to savings or credit to avoid this budget trap.
5. Making Only Minimum Credit Card Payments
Credit cards carry notoriously high-interest rates. For example, a $5,000 balance at a 19% APR with only minimum monthly payments would take over 17 years to pay off and cost $5,429 in interest. Make more than the minimum to knock out balances ASAP. If necessary, transfer to a 0% promotional APR card or lower-rate balance transfer card.
6. Withdrawing Retirement Savings Early
Taking money out of retirement accounts, such as 401(k)s or IRAs, before you turn 59 1⁄2 years old brings along extra taxes and a 10% penalty. This makes it harder to be prepared for retirement. It's better to avoid using retirement money early.
Instead, when you have big expenses, explore other options like managing your money carefully, finding extra income, reducing debt payments, or considering loans that use the value of your home.
7. Not Contributing Enough to Retirement
On the flip side, many people don't contribute enough to retirement in the first place. Increase contributions by 1-2% annually until you max out allowable amounts. Take advantage of employer matches. Estimates suggest you need 70-80% of preretirement income saved to maintain your standard of living. Start building your nest egg now.
8. Not Adjusting Tax Withholdings
The W-4 form decides the amount of tax taken from your paycheck. Forgetting to update it after big life changes might mean losing hundreds of dollars you could get back or having to pay extra taxes unexpectedly.
Remember to change your W-4 details when things like getting married, divorced, having a new child, or switching jobs happen. To help you get this right, you can use the IRS Withholding Calculator, which determines the best way to manage your tax withholdings.
9. Keeping Too Much in Checking
Checking accounts pay little if any, interest. Limit your checking balance to what you need to pay monthly bills and expenses. Move excess funds into online high-yield savings accounts, CDs, money market accounts, or other interest-bearing vehicles. Take advantage of compound interest instead of wasting this potential.
10. Using Debit Over Credit
Credit cards offer significantly stronger fraud protection than debit cards. They also build credit scores. Meanwhile, debit transactions draw directly from your bank balance, reducing liquidity.
Use credit responsibly for purchases while avoiding interest. Then pay in full monthly. Improve security, convenience, rewards, credit scores, and cash flow management.
11. Not Monitoring Your Credit Reports
Many consumers only check their credit reports after being turned down for loans or credit cards. However, it's wise to monitor reports from Equifax, Experian, and TransUnion annually for accuracy. Dispute any errors you uncover immediately to avoid having mistakes tank your creditworthiness. Free annual reports help you detect issues like identity theft early.
12. Not Knowing Your Average Monthly Expenses
Do you know exactly how much you spend each month on necessities, variable expenses, and discretionary purchases? Many people underestimate their spending behaviors.
Detailed budget tracking and analysis can reveal leaks impacting your bank balances. The 50/30/20 budget guideline devotes 50% of income to needs, 30% to wants, and 20% to debt payments and savings.
13. Overlooking Fees
Banks are known for their various fees, from monthly maintenance charges to overdraft penalties. Ignoring these fees can result in a significant drain on your finances over time. Take the time to review your account terms and conditions, and consider switching to a bank that offers fee-free options, potentially saving you hundreds of dollars each year.
14. Being Unaware of Mobile Banking Security
Mobile banking offers convenience, but it also exposes you to certain risks. Failing to secure your mobile device with strong passwords or biometric features could lead to unauthorized access to your financial accounts. Stay informed about mobile security best practices to keep your finances safe.
Master Your Money For Good
In the complex landscape of banking, avoiding these fourteen common mistakes can make a substantial difference in your financial health.
From protecting your accounts against fraudulent activities to making the most of interest rates, each step plays a role in safeguarding your hard-earned money. You can confidently navigate the banking world and secure your financial future by staying vigilant and informed.
