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Nov 21, 2019 01:09 PM EST

5 Ways to Avoid Common Mistakes in Your Personal Finances

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5 Ways to Avoid Common Mistakes in Your Personal Finances

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Managing personal finances isn't always easy, regardless of your income level. Whether you earn minimum wage or six figures, there are basic principles that should be understood and followed. When it comes to your own finances, a few bad habits can be disastrous long-term. Check out the five tips below for avoiding common pitfalls.

Add Lifestyle Spending to Your Budget

Sometimes there's a tendency to establish financial goals that simply are not practical. While you should definitely have a budget and stick to it, your budget should take into consideration how you actually live. You can identify a defined period of time where you can avoid spending money on entertainment, but doing so requires you to be disciplined. Beyond that timeframe, it's beneficial to set aside about 15% to 20% of your income for lifestyle spending. This includes going to restaurants, concerts and movies. A common mistake is spending more than you should in this category.

Refinance Parent PLUS Loans

Perhaps the greatest gift you can give to your child is funding college education, but the continuous repayment bills piling up can put a real financial burden on the shoulders of parents. Based on its typically high interest rate when the loan was originated, not to mention likely improvements to your credit score over the last four years, now may be the time to choose to refinance Parent PLUS loans to a more favorable interest rate.

Track Your Credit Score

It's common to have errors on your credit report. In fact, many people don't realize there's a problem until they try to apply for credit and either get approved for a lower than market interest rate, or flat out get denied. It's best to track your credit score regularly. You can receive a credit report at no cost at least once a year by contacting the major credit bureaus. This way you'll be able to identify and clean up any errors, which can help raise your credit score down the road.

Open a Separate Savings Account

A great way to achieve your financial goals is by making it difficult to access your disposable income. When you have a savings account at the same bank as your checking account, it's easy to transfer back and forth between accounts online, not to mention spend the money you're trying to save. Having a savings account at a different banking institution will discourage you from accessing the money simply because it isn't as easy. You can also set it up where you must physically enter the bank to access your savings account.

Avoid Unnecessary Expenses

For some people, shopping is a hobby, others it's going to concerts, sporting events, or traveling. While it's important to continue to experience life events even in times where spending is put under a microscope, moderation is key. After all, a full bank account but not enjoying life is no way to live. By reducing unnecessary expenses such as cutting the cable cord, cancelling the gym membership, or avoiding going out to eat and opting for meal planning at home can make the difference in building an emergency fund, saving for retirement, or paying off debt without sacrificing enjoyment.

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