Your current financial position is a result of every financial decision you’ve made up to now. If you are like the majority of people, you’ve had very little if any coaching, so you are just learning along the way. What this means is even though many of the choices may spring from good intentions, they fall flat because of poor planning or inadequate understanding. However, identifying your mistakes can help you avoid making them again.
Spending excessively or living outside your means
People visit restaurants more frequently than their wallets allow, purchase lavish articles or splurge on kids birthday parties (or sometimes travel) that empty out their accounts. Living above what you can afford, and spending cash you don’t have to impress others is a financial and emotional black hole.”
Sometimes, excessive spending comes not from the desire to impress but purely from negligence or frivolous purchasing. Trivial purchases like a daily latte, gym memberships we rarely use, or that magazine we barely read but happen to be too lazy to cancel our subscription to may appear petty when considered individually, but accumulate over time.
Spending before saving
A typical misconception individuals have, is the fact that our savings are what’s left after our bills are paid, and our monthly spending is calculated. However, this method is backwards. It’s easier first to define an amount you want to save each month, then spending accordingly. This will not only help with eliminating unnecessary spending but additionally helps focus your savings goal and get it within a fixed time-frame.
Not Building An Emergency Fund
Most households live payday to payday. Therefore, an unforeseen crisis will easily be a disaster if you’re not prepared. Many financial planners suggest keeping three months’ salary in an account where one can easily access it. Lack of employment or changes in the economy could drain your savings and generate a cycle of debt having to pay for debt. A 3-month buffer may be the difference between keeping or losing your home.
Not Planning For the Future
Your financial future depends on what’s happening right now. Individuals will spend 20 hrs each week on the internet or watch television, but putting aside two hours per week for his or her finances is unthinkable. You should know what your current financial situation is so you can create a savings plan for the future.
Not having Insurance
While it’s great to keep an optimistic attitude about life and think that nothing bad will happen to you, should you not own insurance whether household, vehicle or medical, you can cause your family and yourself great financial distraught.
Living on borrowed money
Probably the most common financial mistake people make is accumulating frightening amounts of debt, which could happen for various reasons like losing a job, getting divorced or merely spending too frivolously. Every time you swipe your credit card, remember that you have to pay that amount back plus interest. Be cautious before adding new financial obligations for your listing of monthly payments.