You have a decent income, live more or less within your means and pay your bills on time, but do you ever feel like you could be doing more with your money? You might be doing most things right but still making some wrong moves as well. Sometimes, you need to look a little bit beyond conventional wisdom to make take the best financial steps forward.
Not Using Credit Cards
You know better than to run up credit card debt, so not using credit cards at all seems like a no-brainer. However, this isn’t really the case. First, using credit cards for purchases that you will pay off at the end of every month is a great way to build your credit. What you should be cautious about is taking out too many cards. Even if you don’t have any debt, a potential for too many cards can have a negative effect on your credit score. Another advantage of using credit cards is that they can come with valuable rewards, from cash back to free miles and more. Of course, if you are already paying down a card, you should wait until you don’t carry a balance to start using credit cards strategically.
Just Paying Debt
Having a plan to pay off a portion of your debts each month also seems like a smart financial plan. It’s not a bad one, but in most cases, there is more you can do. For example, if you are paying off credit cards, find out if you can roll your balance from a high-interest to a low-interest card. Another possibility is refinancing your student loans with a private lender. This can save you money in the long and short run. Having a lower rate means a lower payment, and you may also pay off your loan months or even years sooner.
Having a Strict Budget
A strict budget sounds like a responsible way to manage your money, but the fact for most people is that if you are too strict, you won’t be able to stick to it. A budget in which you add some flexibility for discretionary spending that you are able to follow is far more valuable than one that looks like it will make you a millionaire on paper but that is far too restrictive to maintain.
Putting All Your Money in Savings
There’s nothing wrong with having a savings account, and in fact, you should have anywhere from three months to a year or more of expenses in just such an easily liquidated fund in case of emergencies. However, if you have all of your savings in low-interest accounts, you can’t earn much money and it might not even grow at a rate that will keep pace with inflation. You don’t have to make big risky investments in order to have a portfolio that is likely to see slow, steady growth throughout your lifetime. This is generally the goal of retirement accounts. A good strategy is to spread your savings across no-risk and low-risk accounts with some set aside for medium- and high-risk investments that you can afford to lose.