Life may be frustrating if you keep making financial mistakes. Sometimes we make the mistakes even when our intentions are right. Mostly, the mistakes occur when we miss an opportunity that would have changed our financial life.
Its okay to make mistakes, except if you keep making the same mis steps again and again. Every financial mistake should provide a learning ground in order to avoid financial stress. Its important to note that, the financial choices that you make today can affect your future financial life. You then will need to make better financial decisions to ensure you are in the right track towards your financial freedom
The good news is it is not too late to control your financial life. This article explains the common financial mistakes people make and ways you can avoid them.
Mistake 1: Spending More Than you Earn
This is a common mistake made by many people who try to live beyond their means. Living above your means causes a lifetime financial struggle that leads to financial depression.
Making a realistic budget for your finances and sticking to the budget helps you live within your means. With a budget, it is possible to have enough money left at the end of the month to save and invest. The money can also be used to clear some debts that would be overwhelming.
Correcting your spending requires you to cut non-essential expenses. You need also to stop the impulse purchases so that you can free up some cash to put towards long-term financial goals. However, if you’re struggling to keep up with your budget and have already cut out all the extra spending you can, it may be time to look into more far-reaching solutions. For example, you might be able to renegotiate certain services such as cable and internet, or reach out to your lenders about altering the terms of your monthly debt payments.
Mistake 2: Not Having a Financial Plan
Financial planning provides a clear picture of your financial goals. You are able to match your spending and your priorities. Without a financial plan, it will be difficult to make progress towards your financial goals.
The plan helps you determine when to start investing your money and when to save for your retirement. Therefore, take sometimes and prepare your plan for better financial progress. Putting off financial planning until future makes things difficult for you. break your finances in bits that are manageable. Achieving financial success is not a one-day thing, but ignoring your to-do list may extend your financial problem.
Mistake 3: Not Having Financial Goals
Financial goals give you steps to work toward. These goals should be specific. You may not at one time achieve financial success if you lack financial goals. Set solid financial goals and review them every year.
Mistake 4: Not Saving Anything
It is vital to have enough cash to cater for your family expenses for three to six months. A good rule of thumb is to save 10 percent of your net income. If that amount seems impossible in light of your monthly expenses, try starting with 5 percent and increase that amount by 1 percent each month until you’ve reached the 10 percent threshold.
Living paycheck to pay check does not provide an opportunity to do other things such as buying a house or a car. When you fail to save you assume you will not need money for emergency in case something happens.
Mistake 5: Failure to Invest in Your Future
Putting your money to work increase your financial base. Lack of investment may drain your future finances. The best way to meet your future financial goals is having a smart investment strategy. If possible, diversify your investment portfolio to broaden your future financial sources.
The earlier you begin to invest, the better off you’ll be later. However, it’s never too late to implement an investment strategy that meets your long-term financial goals. A qualified financial advisor can help you develop a strategy that balances risk with return based on your goals and timeframe.
Mistake 6: Continuously Borrowing Money
Sometimes, you may be tempted to borrow money from people mostly when you are in a tight financial situation. Borrowing from them may ruin your relationship if you are not able to pay. They may start questioning your financial decisions and sometimes talk negative about your spending habits. They may also demand for their money when you are not ready to give back. You may also feel guilty when you see them.
Mistake 7: Living in a Place You Cannot Afford
According to financial experts, you are only supposed to spend a third of your income on housing and any other related expenses. Once you spend much on your housing, you end up having some struggle to pay for other expenses. Live in a place you can be able to pay and leave you with enough cash to cater for other expenses.
Mistake 8: Buying a New Car Without Considering Other Options
Having money doesn’t mean you must purchase a new car. Cars lose their value as they age. A new car loses approximately 25% of its value in the first year of ownership. Depreciation rate reduces after the first two years. This means a used car is usually better than a new one. Buying used car means the depreciation has already come out of the previous owner’s pocket – not yours. Meaning, you’ll get more of your money back when the time comes to sell the car.
Many manufacturers offer certified pre-owned vehicles, which are typically two to three years old with low mileage. These programs usually include a full overhaul of the vehicle and a manufacturer warranty. You get the advantages of a new car for a much better value and all you give up is the new car smell.
Mistake 9: Making Major Purchases Without Comparison Shopping
Many people opt to stick to one provider in case of recurring expenses. However, it pays to do some comparisons before renewing the contract with the service provider. Do a review to find out whether you are incurring more expenses than necessary mostly if you only stick with the same service provider.
Mistake 10: Overusing Your Credit Cards
One of the most common financial traps, especially for individuals in the early stages of their adult life, is accumulating credit card debt. A credit card is a powerful tool to help build your credit history, but a high credit limit can encourage living beyond your means. Many people don’t realize that the minimum payment generally only covers interest. While many Americans carry debt from student loans or car loans, stacking credit card debt on top of other debt causes much financial stress.
Using your credit card responsibly can provide many benefits, but you’ll want to avoid getting in over your head. However, if you’re already carrying big credit card balances, it’s not too late to recover! Consider using a personal loan or a credit card with a low balance transfer interest rate to knock down those balances. Then find a card with a solid rewards program and a reasonable interest rate to use for everyday purchases while paying it off every month to improve your credit score.
Mistake 11: Not Seeking Financial Knowledge
Seeking education on finances may help you avoid many financial mistakes and find your path to financial well-being. There have never been so many free ways to learn to be a financial master. Whether you prefer to read blogs, watch videos or listen to podcasts, educating yourself is the best way to avoid making financial mistakes.
Winding up
In life we learn from mistakes. However, it is better when we learn from others’ mistakes. Now that you know the 11 common financial mistakes, you can avoid them so you can achieve financial wellness.
