These are the 7 Financial Red Flags You Should Address Before You Turn 40
When the restaurant isn’t clean, that’s a red flag. When your date forgets his wallet, that’s a red flag. And when an auto mechanic pushes a bunch of costly repairs on you at the garage, that’s a huge red flag.
Then, of course, there are financial red flags. Life sends you these little alarm signals your finances aren’t quite where they should be. For example, when your bank hits you with an overdraft fee, that’s a clear sign your finances could use some TLC.
As we mature, we try to cast off these red flags, but sometimes they’re difficult to shake. Here are several common financial red flags you should address before you turn 40 — plus easy ways to eliminate them this week.
Red Flag No. 1: Paying Overdraft Fees
Yep, huge red flag. Do you keep getting hit by overdraft fees? They add up fast and can send you into a cycle of despair.
Luckily, there are some nicer accounts out there that won’t charge you overdraft fees. Aspiration is an all-in-one cash management account that gives you everything you need.
It comes with 5 free ATM reimbursements each month and no overdraft fees, so you’ll never have to worry about sneaky monthly maintenance charges again. Avoiding those fees alone could save you up to $400 a year.
Plus, with the Aspiration Spend account, you can earn up to 5% cash back on your debit card purchases. And with the Aspiration Save account, you can earn up 11 times the average interest on your savings balance (the FDIC reports that the average account earns just .09%).
Plus, It takes five minutes to sign up for the account. Move your money over, and you’ll be on well on your way to ridding yourself of this financial red flag.
Red Flag No. 2: Not Budgeting
Do you know how much of your income goes toward housing? Or how much you spend on dining out each month? Have you set any financial goals lately? What’s your savings look like?
One of the simplest ways to identify — and overcome — multiple financial red flags is to create a budget. We know, we know. Budgets are no fun. But that’s why we recommend the 50/20/30 method — because of how simple it is.
Here’s what it looks like:
- 50% of your monthly income goes toward living expenses. These include rent, mortgage, utilities, groceries, car payments, gas and loan payments.
- 20% of your monthly income goes toward money goals, which can include investments, savings and debt-reduction payments above the minimum amount.
- 30% of your monthly income goes toward personal spending. That’s everything else.
By creating a budget, you’ll be able to identify — and conquer — several financial red flags and feel more confident about your money.
Red Flag No. 3: Paying Too High Credit Card Interest
Credit card interest rates often rise above 20% and can persistently gobble up so much of your income that you’ll never get ahead.
And the truth is, your credit card company doesn’t really care. It’s just getting rich by ripping you off with high interest rates. But a website called AmOne wants to help.
If you owe your credit card companies $50,000 or less, AmOne will match you with a low-interest loan you can use to pay off every single one of your balances.
The benefit? You’ll be left with one bill to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.99% APR), you’ll get out of debt that much faster.
AmOne won’t make you stand in line or call your bank, either. And if you’re worried you won’t qualify, it’s free to check online. It takes just two minutes, and it could help you eliminate this red flag in your life — once and for all.
Red Flag No. 4: Ignoring Your Credit Score
Another red flag: You don’t treat your credit score like it’s important. Heck, you might not have checked it in months… or ever. But what happens when you want to buy a car? Or a house? Your credit score will play a huge role in whether you’ll be able to do that.
And if you have an error on your credit report (one out of five reports do), that could stand in your way, too.
Thankfully, a website called Credit Sesame will help — for free. It allows you to check your score, helps you find (and dispute) errors and even shows you ways to improve your score.
Take, for example, James Cooper. He didn’t know anything about credit, but Credit Sesame showed him the exact steps he needed to take to improve his score — from 524 to 801.
Then there are people like Salome Buitureria, a working mom in Louisiana who, in using Credit Sesame, found a major error on her report. The site helped her fix the mistake and take additional steps to raise her credit score nearly 200 points.*
Want to check for yourself? It only takes about 90 seconds to sign up and get started.
Red Flag No. 5: Never Checking Your Insurance Rates
When’s the last time you checked car insurance prices? If it’s been more than six months, that’s a red flag. Shopping your options twice a year could save you some serious cash.
Let’s be real, though. It’s probably not the first thing you think about when you wake up. But it doesn’t have to be.
A company called Gabi makes it super easy to compare car insurance prices for the same exact coverage you already have. Plus, it makes switching plans a breeze.
Take Lourdes Robles-Velazquez, for example. The single mom lives on a tight budget. She was paying $205 a month to insure two Toyota Priuses — hers and her daughter’s. By using Gabi, she knocked $80 off her monthly car insurance bill. That’s nearly $1,000 in savings per year.
Wondering how much you could save? Head over to Gabi and link up your current insurance account (this is how it gets you that apples-to-apples comparison). Then, browse your options. It takes all of two minutes.
Use this strategy to take a closer look at your other monthly bills, and challenge yourself to find more ways to save. Your budget will thank you.
Red Flag No. 6: Having No Retirement Plan
If you haven’t started thinking about retirement, now’s the time. The sooner you start, the better.
If your employer offers a 401(k) plan as part of its benefits package, then you should absolutely, definitely take full advantage of your employer’s matching contribution. If you’re already at the full company match, consider increasing your contributions even more. Trying raising it by at least 1%.
If your employer doesn’t have a 401(k) package, or if you’re self-employed, consider stashing retirement savings in a tax-free IRA. Contribute to it routinely and automatically, if you can.
Red Flag No. 7: Not Investing
Once you sort out your more immediate financial red flags, start looking forward to the future — by investing.
We found a company that helps you become a real estate investor, and you don’t have to be a millionaire.
You can get started with a minimum investment of just $500. Through the Fundrise Starter Portfolio, your money will be invested in portfolios of real estate around the United States.
You can see exactly which properties are included in your portfolios — like a set of townhomes in Snoqualmie, Washington, or an apartment building in Charlotte, North Carolina.
And you don’t have to be the landlord. Fundrise does all the heavy lifting. As tenants pay their rent, you can earn money through quarterly dividend payments and potential appreciation of the property.
It’s a great way to get started in the world of investing now that you’ve got some additional income.
*Like Cooper and Buitureria, 60% of Credit Sesame members see an increase in their credit score; 50% see at least a 10-point increase, and 20% see at least a 50-point increase after 180 days.
Credit Sesame does not guarantee any of these results, and some may even see a decrease in their credit score. Any score improvement is the result of many factors, including paying bills on time, keeping credit balances low, avoiding unnecessary inquiries, appropriate financial planning and developing better credit habits.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder.