On February 2, 1887, Groundhog Day, featuring a rodent meteorologist, is celebrated for the first time at Gobbler’s Knob in Punxsutawney, Pennsylvania. According to tradition, if a groundhog comes out of its hole on this day and sees its shadow, it gets scared and runs back into its burrow, predicting six more weeks of winter weather; no shadow means an early spring. It’s the same tradition every year, and if you have seen the Groundhog Day movie with Bill Murray, then you know that the day can also repeat itself over and over until you figure out a way to break the cycle of mistakes you consistently make.
The same applies to financial mistakes many make year after year. There are ways to stop the cycle and get back on the right financial track to avoid a Groundhog Day scenario of your own.
First is understanding what the financial mistakes may be. Here are some common ones to avoid and solutions on how to avoid repeating them over and over again.
You Put Everything on Your Credit Card Reports show that the average American household has about $7,027 in credit card debt while the average American household carries about $145,085 in personal debt. Some consumers tend to put too many expenses on their credit cards which typically come with high APRs. The average credit card APR is now over 17%. If you carry balances month to month, this can get you deeper into debt making them harder to pay off. Solution: If you carry credit card debt, then paying that debt off should be a top priority. Some options to pay off this debt are to consolidate (refinance or home equity can be good options) or get a lower APR balance transfer credit card. Both options are viable when you have good credit.
The Holidays Destroyed Your Budget Regardless of how much money you make, it’s a good idea to have a budget showing you:
What is coming in
What is going out
Where is your money going
How much is going into your savings and your emergency fund
How much is going into investments for your future or as an additional source of income
With these basics of financial planning, your financial life will be more organized and you will be less likely to overspend. During the holidays, it's easy to forget that the following year is just around the corner with its own set of expenses. Failing to budget for holidays and your day-to-day life can leave you with high credit card bills. Solution: Create a budget for the year and try to save money throughout the year to make your holiday spending easier to manage. A Christmas Club account can help. Try not to spend more than you can afford. If there’s no money for it in the budget, then it shouldn’t happen unless there is another way to pay for it—such as getting a freelance gig or a part-time job.
3. Paying Your Bills Late There’s a chance that you may have forgotten to pay a bill on time. Life gets hectic, but even one late payment can hurt your credit score. Solution: Create a budget so that all your bills get paid on time. Set up automated payments through your checking account so that you don’t accidentally miss any payments.
4. Overdrafting Your Bank Accounts To keep up with your bills, it may be tempting to overdraft your bank accounts. However, this costs you more money since you end up paying overdraft fees. This can get you in an even bigger hole. Solution: Sign up for online and mobile banking. You can sign up for alerts that notify you when your balances are low. You can also turn off overdraft protection so that your account isn’t overdrafted and you don’t pay those fees.
5. Not Saving Many live paycheck to paycheck, making putting money away for saving a challenge. However, not saving anything can be a costly mistake. Many Americans aren’t prepared for emergencies, which can sink them deeper into debt. Having a savings account—even a small one, can serve as a buffer if you have a financial emergency. Solution: Identify what expenses you can cut out of your spending, then start putting that amount into your savings. You can have a certain amount deposited each paycheck, or from your checking account into a savings account. Put your money in a high yield savings account and watch it grow quickly.
6. Not Monitoring Your Credit Your credit is important. Identity theft is more rampant than ever. Having negative information on your credit reports can keep you from getting approved for a loan, pay higher interest rates, or get turned down for a job. Solution: Each year, request a free credit report from the three credit reporting companies at www.annualcreditreport.com or by calling (877) 322-8228. Reviewing these reports can help detect fraud. Remember to request credit reports for underage members of your household. Fraudsters often focus on young people because their credit is not established yet.
If you want to end repeated financial mistakes this year, make a plan and stick to it. Keeping track of your finances may not prevent six more weeks of winter, but you’ll be secure knowing you aren’t repeating these mistakes and reliving your own Groundhog Day.