Money needs to be one thing in your life that is managed very carefully.
According to expert studies, money (lack thereof) is the leading cause of many problems and setbacks. It is the leading cause of highly stressful life events such as marital divorce, home foreclosures, and mental health issues.
For some, money is a very contentious issue; rather than discuss it, people often bury their heads in the sand rather than face the problems they are experiencing financially and not educate themselves on the most common financial mistakes.
Many people avoid the topic of money altogether, never discussing anything to do with money with anyone, not even their spouse.
They blindly go through life living pay check to pay check, paying minimum payments on credit card debt, taking out payday loans, and struggling to make ends meet. Most of these people will not even open their mail as they know it’s another bill or demand, and they can’t face it because they feel like nothing can be done about it.
There is always a solution get out of any financial situation you may find yourself in, and today, we are going to look at how to avoid getting into these financial situations in the first place with these money mistakes to avoid.
1. Spending more than you earn.
The most important aspect of financial planning is ensuring that you only spend what you earn; this comes down to sound money management.
I know this can be tricky, especially if you have a lot of expenses or debts. However, staying within your means to stay financially secure is essential.
There are a number of options for this:
First, make sure you have a full clear understanding of your income and expenses. Second, create a budget and stick to it.
Finally, ensure you’re living within your means by avoiding unnecessary purchases and debt. If you can master these three things, you’ll be well on your way to financial freedom.
Without savings, you will have nothing to fall back on in times of need, and you may be forced to take on high-interest debt to make ends meet. Furthermore, failing to have retirement savings can lead to a lifetime of financial insecurity.
By saving extra cash now, you can ensure you have the resources you need to enjoy a comfortable retirement. In short, not saving for the future is risky and can have serious consequences.
3. Taking on too much debt.
Taking on too much debt can seriously impact your credit report.
When you miss payments or default on loan, this can stay as a mark on your credit report for up to seven years. This can make it challenging to get approved for new credit and could lead to higher interest rates when you do borrowing.
It’s essential to be mindful of your debt levels and to make sure you can afford the monthly payments before you borrow. If you’re struggling with debt, many resources are available to help you get back on track. The quicker you take action, the better your chances of avoiding long-term damage to your credit report.
4. Investing in risky stocks or schemes.
When it comes to investing, there is no sure thing. Even the most carefully researched stock can take a tumble, and the hottest new start-ups can quickly fizzle out.
As a result, many people choose to play it safe by investing only in tried-and-true companies or government bonds. However, there is also a case to be made for taking risks. Reinvesting in riskier ventures can lead to higher returns, provided the gamble pays off.
Of course, there is also the chance of losing money, but for some investors, the potential rewards are worth the risk. Ultimately, whether or not to invest in risky stocks or schemes is a personal decision that should be based on an assessment of one’s goals, risk tolerance, and financial situation.
5. Buying a home, you can’t afford.
One of the largest financial mistakes you can make is buying a home you can’t afford. It may be tempting to stretch your budget to get the house of your dreams, but if you’re unable to make the monthly payments, you could find yourself in severe financial trouble and even foreclosure.
In addition to the mortgage payments, you’ll also have to pay for repairs and maintenance, property taxes, and insurance.
Before making such a large purchase, take a close look at your finances and make sure you can afford the house you want. If you’re unable to keep up with these expenses, you could lose your home. If you don’t assess affordability before you buy the house, you could end up regretting your decision for years to come.
6. Failing to plan for retirement.
Failing to plan for retirement is a common mistake that can have far-reaching implications. With a plan, knowing how much money to save and how to best use that money to support yourself in retirement can be easy.
Additionally, it may be challenging to stick to a savings goal without a plan, as other financial priorities can quickly take precedence.
With a plan, it can be easier to gauge whether you are on track to meeting your retirement goals. By taking the time to develop a retirement plan, you can ensure that you are making the most of your savings and giving yourself the best chance for a comfortable retirement.
7. Only having one source of income.
If you only have one source of income, what will you do if that income is taken away? You will have no income, and I don’t have to tell you that it is not a great place to be.
Many people have more than one skill or hobby, which can be turned into another source of income to supplement their primary wage.
Start a side hustle doing something that can bring in more money; you never know if this side hustle could turn into an income that overtakes your primary source of income. If you are looking for ideas, check out this article on side hustle ideas.
Side hustles are usually something you would rather be doing than your main job, as nobody starts a side hustle in things they don’t like doing.
8. Not having an emergency fund.
This is a common money mistake I see people making. I’m sure you have heard me say this before, you need to have an emergency fund which will cover unexpected expenses, which has enough cash in it to survive on zero income for six months.
There are a thousand other bad habits on which you shouldn’t be spending your money on, but these are some common ones that lead you to the poor house.
If you are spending money on any of these habits, you need to try and stop, now.
Spending money on these bad habits will also increase your medical insurance premiums and are not a necessary part of life. If you are spending on some of these things, you must seriously pay attention and try to quit as soon as possible.
11. Saving rather than investing.
Once you have your 6-month emergency fund, as discussed in point number 3, every penny you put away after that should be invested, not saved.
What do I mean by this? If you save money, you are placing it in a standard bank account where you will be paid a heartbreaking 0.5% interest per year.
With inflation running at 2% (normally), that means that every year your money is sat in a savings account, that money is losing 1.5% per year.
If you invest that money in a fund like the S&P 500, which on average returns around 9% per year over the long term, with inflation at 2%, your money is still growing by 7% a year and is compounding year on year.
The eleven financial mistakes listed above can significantly negatively impact your financial future. It’s essential to be aware of them and take steps to avoid them. If you need help getting started, our team is here to assist you.
A recent National Financial Educators Council study found that nearly half of American adults are “financially illiterate.” This means they need to gain more basic knowledge in finance to be able to make sound financial decisions that will improve their lives.
The consequences are dire, as people without financial literacy are more likely to fall into debt, experience poverty, and make other costly mistakes with their money.
One of the best ways to combat this problem is to ensure everyone has access to quality financial education.
This can be done in numerous different ways, such as through schools, blogs, YouTube videos, workplaces, and community organizations.
Financial education should cover multiple topics, including budgeting, retirement savings, investing, and dealing with debt.
When people have a good understanding of finance and money management skills, they are better able to take control of their finances and achieve their goals.
So, if you want to see positive change in your life or the lives of those around you, make sure you get involved in financial education.
I hope these 11 Money Mistakes You Must Avoid have helped open your eyes to improving your financial future.
Lee, now the author of Learn Life Money, has started businesses in various industries such as E-commerce to social media marketing. He is an award-winning entrepreneur having received awards from Dragons Den Theo Paphitis, and winning awards for the fastest-growing social media marketing agency in 2019, You can read his full story here. Lee helps people to start and scale their businesses using their knowledge and experience. He has a passion is to help others achieve the success he has achieved and wants to help people pave their path to financial freedom from making the right decisions with money to starting their own businesses.