Managing your finances and making smart money decisions can be a challenge and it is inevitable that mistakes will be made. While a minor mistake is just a bump in the road that you can get over quickly, there are some financial decisions that can spell disaster and that can create a money mess that’s hard to fix. From poor credit to no savings for emergencies or retirement, falling into major money pitfalls now can mean years of financial hardship. Here are five big money mistakes to avoid so you don’t find yourself in a financial hole that you’ll have a hard time getting out of.
No Savings and Emergency Funds
When households are heavily reliant on the monthly salary, and cannot make provisions to keep the advisable 10% to 15% of their income in savings and emergency funds, chances are they will be caught off-guard in case there is an emergency. Experts advise to keep three months’ worth of living expenses as emergency or backup funds to be prepared for life’s uncertainties.
Whether it’s in the form of a stock, mutual, 401K, a trust or some other vehicle that will pay interest the key is to invest. The best way to make more money from your existing money is by investing it to let interest work for you rather than against you. If you do not utilize your money to make more money for yourself, then chances are you might never be able to stop working. Speak to a qualified financial adviser to understand the time your investments will need to grow and the amount of risk you are willing to take in achieving your financial goals.
Unconscious and Unnecessary Spending
If you do not know where your money is going, there’s a good chance it will not end up where you want it to. Spend only what you need to should be the model we follow, but some of us tend to ignore the implications of small every day costs of things like eating out, buying that candy bar pack of gum. The truth is that in the long run these costs have a huge impact. Spending just $20 a week on eating out and buying frivolous items means spending an extra $1,000 per year, which could easily be a mortgage payment or a few car notes.
Caught in the cycle of managing monthly income and expenses, one tends to ignore the importance of being insured. Medical conditions, death and disability cannot be predicted. Thinking ‘it won’t happen to me’ and considering insurance an expense you can do without will create problems for your family if you are the income earner and something untoward happens to you.
Assuming You Can Save up Later
Many people believe that there is some magic event in the future that will turn their financial lives around and let them start saving. “When the baby grows up.” “When I make more money.” “When I hit the lottery.” There is always some excuse why you won’t save now and some point in the future when you will start to save. That point may never come though, and it may never be a good time to save.
If the goal is to win the financial challenge, you must be willing to establish discipline and make wise decisions. Learn all you can and practice the sound financial principles that ensure a bright financial future.
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