People make mistakes in their life, but financial mistakes are those kinds of mistakes if whenever they’re trying to get rid of it, it takes years or decades to recover. But, if you are aware of making those mistakes by financial literacy, you and your next generation will live a better life.
Here I’m going to discuss with you the 13 biggest financial mistakes that I made and learned from my real life. So, let’s get started.
1. Not having a budget
Budgeting is the main key to reach your financial goal. If you live without budgeting month after month, you won’t understand where your money is going. You’re making a decent amount of money every month but you’re struggling with your expenses. You don’t have a solid budget means you’re not taking control of your money. That’s why money controls you.
End of the month you see the money end up with some extra credit card loan.
To get rid of the problems, you might consider first the budgeting rules. 50/20/30 is my favorite budgeting equation. Before starting a new month, make a budget with your partner. You can write it down in a notebook, spreadsheet or mobile apps.
First 50% you should expend to cover your basic needs. Other 20% you can expense to cover discretionary expenses like going out for a dinner, travelling or gym membership. And another 30% for retirement or other financial goals.
2. Living paycheck to paycheck
According to the First National Bank of Omaha 49% American say that they live on paycheck to paycheck that means they don’t have an emergency fund to cover at least 3 months of expenses. If the problem is also yours, you should make an emergency fund in a specific account to tackle any emergencies like sudden unemployment, serious health issues or any other emergencies like Coronavirus pandemic. You should think about avoiding to live paycheck to paycheck.
3. Don’t track spending
You’re worried about your financial condition because you didn’t track your spending on a daily basis. Not writing down your daily expenses in a specific diary or spreadsheet or mobile apps is a great mistake in your personal financial life.
If you don’t write down your expenses and track spending you can’t take control of your money. There’re lots of budgeting and expenses tracking apps online.
Track your expenses, find the overspending and solve the problem.
4. Using credit cards while shopping
When you use a credit card while shopping for daily needs or any other necessary, you will run up with a huge amount of debt. Statistics show that people spend more money when it comes to pay by credit card.
It’s also easier to stop paying close attention to your budget when you pay with a credit card. You should avoid credit cards just now if you really want to follow your budget.
Another issue comes with credit cards, many people pay the credit card bill with another credit card right away. They’re going to fall into more debt.
5. Fall in advertisers’ traps
Recently I saw a company send me notifications many times saying “Today is the last day to grab the offer”, I’ve just seen and ignored it. Because I know how the advertisers attract to buy right now but many people don’t.
You can see these types of offers while shopping ; buy 3 get 1 free, stock limited, 50% off for a limited time etc. Be careful from advertiser traps. Always follow your budget and never exceed your monthly budget.
6. Not having an emergency fund
If you don’t have an emergency fund, you’re in huge stressful financial experiences. Maintaining your budget could not be fruitful if you don’t have an emergency fund.
Anytime, an unexpected event may occur like; loss of job, emergency health issue, house repairs or any pandemic etc. Without an emergency fund you may have to borrow money for meeting those emergencies might be stressful in your financial life.
Hence, you can build an emergency fund set aside from your monthly income. Generally, you should build an emergency fund for equivalent to 3 to 6 times of your monthly income.
Many financial advisors say that emergency funds are not necessary due to insurance. But, I say every emergency could not be met with insurance.
7. Not having auto saving plan for retirement
If you don’t make wise financial decisions, you’ve to work for money till death. If you haven’t saved for retirement yet, you’ll have to work for a lifetime.
You should automate your retirement savings from account to a specific retirement plan like IRA plans, 401 (k) plan, DC plan etc.
You must save10 to 15 percent of your monthly income for retirement or you will have to depend on your next generation. Otherwise, you will have to work till your last breath.
For many, saving 40 to 50 percent of the monthly income they go to early retirement. If you save a good portion of your income, you can build a road that allows you to make more money from your savings than you do now. In this way you can get authority on your money. You can build more assets from your monthly revenue comes from investment or assets.
8. Not building scalable asset
An scalable asset means that kind of asset which puts money in your pocket regularly and the price will increase in future.
If you make a decent amount of money but you’re not building assets still now, you’re in a great mistake. From your monthly savings, you should set up a financial goal to build scalable assets.
You can invest in the stock market, real estate, annuities or build intellectual property like writing books, creating digital content or singing songs etc.
9. Not having adequate insurance coverage
Insurance is that kind of asset you can buy a huge amount of compensation with a little money.
Not having adequate insurance coverage costs you huge money and falls you in a huge risk.
If you think of losing any asset or income you should buy insurance. There are different types of insurance, Life, health and disability insurance for physical risk and there are property insurance available too to reduce risk.
10. Quit job without a better plan
Another, great mistake in one’s financial life is quitting a job without having a new one. If you’re employed you can manage a job easily but you can’t if you’re unemployed. So, be careful about quitting your job without setting up a new business or job. Many people make this great mistake and fall in debt.
11. Borrowing money
Never live with borrowing money. First of all, borrowing money ruins relationships with friends and family members. People around you can assume bad things about your personality. In the long run of borrowing money could make you bankrupt overnight. So,live your life within the money you make, avoid borrowing money.
12. Buying unnecessary things and subscriptions
One of my friends asked me if he makes more money than me but he’s huge credit card debt, why ?
My answer was that he buys unnecessary or lower necessary things every month. You should be aware while buying something asking a question ” Do I really need this thing?” If the answer is yes then wait for a few days to purchase if the thing isn’t a basic need. If you have a gym membership but you rarely go you should cancel the subscription right now.
13. Not understanding debt
Not understanding debt is another great mistake generally people do. Understanding debt means realizing the cost between debts. When you need a loan you should consider it’s rate of interest. You can find a better rate of interest.
I’ve shared with you guys top 13 money mistakes that generally people make in their early financial life. If you’re aware of making those mistakes by learning from experienced personnel you don’t have to experience those mistakes in your life.