Common Financial Mistakes and How to Avoid Them
Ignoring medical bills
I’m a nut about going to the doctor. I’m on top of it because what does anything else matter if you don’t have your health?! Therefore, I’ve learned to expect a little piece of mail a few weeks following an appointment. Depending on your health insurance, your deductible, and services rendered, your bills will vary. But when my first medical bills started to roll in I panicked, especially when one topped $400. I had two options: toss the bill in the trash and pretend I never saw it, or take a deep breath and begin by researching my options. The thing is, not paying your bills is not an option. You’ll continue to receive the bill in the mail each month until they warn you that it is your last notice and last chance to pay the billing company directly. After that your bill and information will be turned over to a collections agency and down goes your credit score.
The solution: Take it seriously. Start by calling the number on the statement and make sure that your insurance was already billed. Once you have verified that the amount owed is accurate, it’s time to figure out how to pay up. Did you know that you can often pay down a medical bill in installments each month? You can do this by again calling the number on the statement and asking to arrange a payment plan. I’ve come across a few scenarios in my experience. One time I had to pay down a lump sum to start and then paid about $45 a month every month until the bill was paid off. Another time, I did not have to pay a lump sum but I agreed to pay a higher amount each month. Always make sure to confirm that no penalties or interest charges can occur. These arrangements with hospitals and doctor’s offices are very common, but you just need to ask! Then make sure to keep up with the monthly payments. Set a calendar reminder or make sure to keep an eye out for an updated billing statement in the mail. If you have a Health Savings Account (HSA) you can utilize it instead of paying out of pocket. The HSA usually has it’s own Visa/MasterCard which can be used for qualified medical expenses. (Yay for employee benefits!)
*Tip* Keep good records. Utilize a spreadsheet on Google Drive or even paper notes to keep track of your medical expenses. I keep a tab for each calendar year. Note the date of service, provider, and amount paid. You may need to refer to your notes down the line and having things organized can save you time, money, and a whole lot of frustration.
Not properly cancelling your gym membership
So many millennials find themselves in this situation. You basically got screwed by a gym you joined and can’t find a way out. They either make the cancellation process near impossible or say you owe a massive amount of money. The mistake is (besides joining in the first place), failing to 100% cancel your membership and resolve all financial discrepancies. A common mistake is just cancelling your credit/debit card and thinking you’re all set since you can no longer be charged. Wrong. The gym can and probably will turn your information over to a collections agency. This agency has one job, to find you, and make you pay. In turn, your credit score will drop and therefore cause you problems for years to come.
The solution: Don’t sign up in the first place. If you really feel the need to join a gym, at least do your research. Read the website’s information, call, read Yelp. Find out in writing exactly what their cancellation policy is. Do not sign up for anything you don’t want or cannot pay for. Know the rules to join and the rules to cancel. If you do want to cancel please follow the procedures and get written confirmation of a final cancellation. Again, keep solid records of names, dates, and information when speaking with a representative.
Thinking saving more later is better than saving what you can now
I know so many millennials have said “I’ll start saving when I make more money” or something more along the lines of “YOLO.” Girl please. Saving early outweighs saving more later. Compounding is seriously the 8th wonder of the world (Einstein supposedly said that). If you are a 20-something who does not understand compounding well keep following along because I will harp on it constantly. Here is an example from Business Insider’s Andy Kiersz.
Emily saves the same amount as Dave but begins 10 years earlier, at 25 vs. 35 years old. She saves ~33% more but ends up with ~twice the amount of money as Dave does at retirement. That 10-year delay cost Dave huge sum of money!
The Solution:
If you need any further motivation, play with a time value of money calculator. Seeing how your money could compound when invested will make you think twice about all the stupid crap you waste your money on today. Give it a try on this simple calculator from Bankrate.
Start by saving in any employer sponsored plan such as a 401(k). Pick a stock heavy fund, such as one that mirrors the S&P 500. If you’re asking what percentage to save, elect at least enough to get your employer match. From that point, increase your savings by 1% each year. This money is taken out of your paycheck automatically and invested for you. It’s relatively untouchable and will grow and compound for years to come. I like to be as aggressive as possible. Every bonus and every pay raise is essentially ignored and my savings are pumped up. I love watching my money make money. Don’t forget that the markets are cyclical and as a 20-something you’re in it for the long-term. Outside of your employer’s plan, I recommend working with institutions like Vanguard or the super millennial friendly, Betterment to open an account today.
Racking up consumer debt
FYI credit cards are not free money. In fact, they are super expensive money if not paid in full and on time. That dress on sale is not such a good idea when you’re paying 19% interest on it. As mentioned above, compound interest is the 8th wonder of the world. So can you imagine a “wonder of the world” against you? This is what happens when you accrue debt. The interest compounds and grows and grows until it seems like you can never get out from under it. All while your credit score plunges. Frankly it’s just stupid to use credit if you don’t understand how to. On the other hand, it’s stupid not to build credit when you are a responsible adult.
The Solution:
Quite simply, live within your means. Don’t buy crap you can’t afford. Don’t open store-brand credit cards. It is completely FALSE that carrying a balance on your credit card is good for your credit score. But also don’t just start cutting up your plastic cards and thinking you’re in the clear. You still have to pay off what you owe. Make a firm decision to pay off your debt. Work with financial coach who can analyze your specific situation and guide you. There are multiple strategies and options when it comes to paying down debt. Why not choose one that works best for you?
For those of you who have messed up just once, like missing a due date and incurring a late fee, give a call to the credit card company. Whether it be a Macy’s card or an Amex, pick up the phone and be nice. When you tell them you made a mistake and offer immediate payment for the full bill, they are often likely to forgive you and the charges the first time. It never hurts to ask.