5 signs you're not as financially literate as you think
April is Financial Literacy Month, an event designed to get people thinking about how they're managing their money. If you're diligent about your finances, you're saving for retirement and you're paying all of your bills on time, you may think there's no room for improvement. But you might be surprised. If you've made any of the following money mistakes, it may be time for a financial refresher.
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1. You Think You Have One Credit Score
Your credit score influences your ability to get approved for loans and determines what interest rates you'll pay. The higher it is, the better. One thing people often get wrong about credit scores is assuming they have only one, a FICO score. In fact, there are upwards of 50 FICO variations, as well as VantageScores and proprietary scoring models used by the three credit reporting bureaus.
2. You Have No Idea What's on Your Credit Report
Your credit scores are based on the information in your credit report. Equifax, Experian and TransUnion all issue credit reports and each credit reporting agency can report different information. The Federal Trade Commission estimates that one in five consumers has an error on at least one of their reports that could be dragging their credit score down. If you're doing some financial spring cleaning, you might need to add checking your report and score to your to-do list.
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3. You're Not Making the Most of Credit Card Rewards
Using a rewards credit card for travel, gas or everyday shopping is a great way to earn points, miles or cash back, all of which can add up to big savings. The problem is that many people let those valuable rewards go to waste or undervalue them.
For example, let's say you have a travel rewards card that pays miles on purchases. Miles are redeemed for travel credit, with 10,000 miles equal to $150. If you were to trade those miles in for a gift card instead, the same 10,000 miles might be equal to $50. So you'd essentially be cutting the value of the miles by one-third and shortchanging yourself in the process.
4. You're Contributing the Bare Minimum to Your 401(k)
A 401(k) is a valuable tool for building long-term wealth. But if you're just chipping in the minimum required by the plan, you're not making the most of it. Why? You could be missing out on that oh-so-important company match.
According to a study from Financial Engines, one in four workers don't contribute enough to their 401(k)s to qualify for the match. As a result, they miss out on a collective $24 billion in savings each year, which breaks down to a loss of nearly $43,000 per plan participant over a 20-year period. If you're not saving enough to get the match, it might be time to rethink your contribution strategy.
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5. You're Spending Too Much on Bank Fees
A bank account is a must-have for things like paying bills and saving, but there's no reason to hand over more money in fees than you need to. When you opt into overdraft protection, for example, you may think you're saving money. But that's not necessarily the case.
According to the Consumer Financial Protection Bureau, consumers who opt in to overdraft protection pay an average of $29.09 a month in bank fees compared to $7.26 a month for people who opt out. If you have no idea what you're shelling out in fees each month, that could be a good reason to take a closer look at your accounts. Switching to an online bank or credit union may be a hassle, but it could save you money over time.
While Financial Literacy Month puts the spotlight on financial knowledge and best practices in April, it's important to establish good money habits that you can practice throughout the year. If you're making any of these missteps, addressing them ASAP is the smartest move for your bottom line.
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