You cannot afford to make many financial planning mistakes as it leads to financial hardship. But don’t worry, as I am here to help you highlight a few financial mistakes you should avoid. Making smart financial choices with your money can be challenging. You also have to be careful where you are investing your money.
Few of us had any formal education in finance or accounting, and even those of us who had a basic checkbook-balancing or personal finance course in school or university can probably count on one hand how much to remember when it comes to finances.
You work extremely hard to earn money but most of the time fumble to put it to use. Also, when it comes to managing that money, you may not think about it. That is where effective financial planning comes. An effective plan where you are going to put that money to work will benefit you a lot. After all, we all earn money to fulfill our needs and demands. So, if you have a proper plan, you can utilize your money better.
When you take financial advice from your close ones, it may not always work in your favor. So, let’s look at some of the common financial mistakes you should avoid when making an important financial decision.
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What is a financial mistake?
Before moving ahead with Financial mistakes that you should avoid, let’s understand what a financial mistake is. In simple words, any financial or money management mistake that leads to losses of money is a financial mistake. Any money management decision that induces loss is a financial mistake.
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No budget- financial mistakes you should avoid
Not having a budget is the biggest mistake you will ever make. Creating a budget not only highlights your expenses but also recognizes what is not working for you. Having a budget is critical to understanding your income and expenses. So, if you are not adamant about how you will spend your money, you are committing to the biggest financial mistake you should avoid.
You must also create a budget that works for you. Because what works for everyone may not work for you. And you will only know this once you have a budget. Check our guide on different types of budgeting to know what suits you. Not having a budget is like not knowing where you are going wrong. Remember the famous adage “failing to plan is planning to fail”.
So, the first step for not making any financial mistakes is to create your budget. Now is the right time to create one and avoid all the financial mistakes you can commit in the future.
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Frivolous Spending- financial mistakes you should avoid
You may not realize this soon, but yes, frivolous spending takes a lot of your money. Everyday meal from outside or an extra cup of cappuccino still adds up a lot, and you end up spending a lot. I will not lecture you about what kind of frivolous spending you do. You know it very well, and it is time to make some change to it.
However, just a tip: do not start something you won’t be able to follow consistently. Find a way that keeps you and your spending happy. You can opt to eat food outside once a week or cut on some other frivolous spending. I know this may sound petty now. But when you check your budget, it makes a huge difference. You will be the happy one to see the results.
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Not planning for emergencies
Emergency funds are something you should always focus on. With Covid19 around us, all of us have realized the importance of emergency funds in our life. And how it can be of exceptional help to us in hard times. Not having an emergency leads to borrowing at high rates or breaking investments meant for long-term goals during times of need – as you have no other option to consider. It is advisable to have a saving of up to six months.
No investments- financial mistakes you should avoid
No investment= No savings. Yes, it is as simple as that. It is essential to put your hard-earned money to work and give you profit. Experts say, if you do not invest your money in markets or through other income-producing investments, you will never stop working.
The burden of your expenses is going to be behind you, and you may struggle during your retirement. Making the monthly investment to designated retirement accounts is essential for a comfortable retirement and gives you a secured future. If you want to learn more about investing or are a new investor, no worries, we have a guide for you to excel in every investment you make.
Tip- Think about investing when you are in your 20’s to get more benefits.
Do you think most of your money goes in cable television, music services, or fancy gym memberships that can force you to pay unceasingly but leave you owning nothing? Today is the perfect time to think about it and start eradicating such expenses from your income. Because creating a leaner lifestyle can help you for long-term savings.
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Living on borrowed money
I know credit card purchases make it easy for you to buy things. But, you end up paying more interest. Every purchase you make adds a little interest- and there is the pile of interest ready for you to pay.
Also, we only think about credit scores before applying for a loan. It takes attention and ongoing work to keep your credit score high. You must maintain your good credit score. For financial flexibility, and the ability to pay less in interest
Not having a plan
Your future depends on what financial choices you make now! If you have not planned where you are going with your finances- it may lead to a lot of trouble someday. You have to have your financial plan, make it a priority just like watching that new series is. A step now can really help you build and achieve your financial goals.
Remember, this does not mean you will never make any financial mistakes. The financial choices you make always assist you to make a better choice next time. Throughout this journey, you learn a lot about your finances and know how to spend money without any financial mistakes. Learn from these mistakes. So you do not make the same mistakes in the future. I hope you handle your finances well and do not end up hurting your financial goals.
Think before you add new debt to the list of your payments. Remember, there is a difference between being able to make that payment and being able to afford it. Lastly, make some savings of what you earn monthly a priority, along with spending time developing a solid financial plan.
Keep updating your list, so you know more about the financial mistakes you should avoid. Do let us know about some mistakes you think everyone should avoid in their financial life. Do not hesitate to learn from your financial mistakes. Happy financing!
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