Common Money Mistakes and How to Avoid Them |
Posted: October 25, 2019 |
Money management is not something usually discussed openly. Money matters for individuals, couples and even businesses is a touchy subject to begin with. It is a difficult to discuss especially when our spending habits correlate so much with our character and how we are as a person. Here are common money mistakes and how to avoid them: 1. Not Having a Financial PlanWhat are your goals for the next two to three years? For the next 5 years? 10 years? You may have some wild dreams in mind but are your finances in check in order to achieve your dreams and aspirations? Your financial plan includes your cash flow, debts, savings, insurance, investments and other details of your financial life. Having one helps you map out strategies for achieving and prioritizing your goals set in life. Solution: Whether you are familiar with the format of a financial plan or not, there are a lot of information to help you come up with a solid financial plan. From creating your plan, to budgeting templates and other helpful tools, there are many free resources like this list from the Balance.
2. Living From Paycheck to PaycheckYou may not notice it right away. You might think that you have some financial circumstances that's putting you in such circumstances. Your spending habits are to blame for living paycheck to paycheck. You might think that you simply don't earn enough but, in most situations, proper budgeting can help you free up your cash flow to have some extra for savings and your emergency fund. Solution: Breaking the paycheck to paycheck cycle takes commitment, discipline and careful planning. These best practices are what experts recommend as steps to attain financial independence:
3. You Have Too Much Credit Card DebtLet's face it. In this plastic card economy, where amassing credit card debt have become a norm for a lot of Americans, not everyone has the self-control to spend only what they can actually afford. Miss a few payments, get slapped with late charges. Soon, your debt will snowball into a few hundreds to thousands of dollars. Solution: Millions of Americans are falling into the debt trap. If you have multiple debts, one of the best methods is to pay off your debt in the highest amount while paying off the minimum on the rest. When you finish paying off one, pay off the next biggest amount. This method popularized by Dave Ramsey is called the Snowball method. However, if your debt is too much that you are not able to pay them off no matter what budget adjustments and cutting back on expenses you do, the amount never seem to go down, you might want to consider getting expert help through a legitimate debt relief provider. Debt relief companies help out people in debt by setting up a special savings system to pay off your debt in the least amount and in the shortest period of time possible. According to CuraDebt, one of the leading debt relief providers in the US, they give out a free debt counseling and savings estimate service for those people needing debt advice through here. Don't hesitate to ask for expert advice since these companies have the ample experience to give you the best course of action according to your unique financial situation. 4. You Have No Emergency FundWe'll never know what life will toss us. Should you get sick unexpectedly, have your car broken suddenly or laid off from work out of the blue, having an emergency fund of at least 3-6 months of your savings will help you get yourself back on your feet without straining your finances. A quarter of Americans have not saved up for an emergency fund according to statistics. This means, this group will not be prepared should an unprecedented event would incur. Solution: Make saving a priority. Have a raise? Save it for the rainy days! When you have a solid financial plan as advised above, it would be easier to save up for your emergency fund. You can also get extra cash by selling stuff you don't need or offering a service you are capable of through listings online. 5. Cutting Back on InsuranceSome people don't think twice on comprehensive car insurance especially when the car is loaned from the bank. However, they skimp on other important insurance. The truth of the matter is, it is an important element of any financial plan. Insurance plans help protect you, your loved ones and your properties in many ways against the cost of illness, accidents, disability and death. Solution: You may find it unnecessary for now but insurances help secure you and your family from using up your saving or worse, falling into debt if any of your members get into an accident, sickness or having to struggle should there be a death of a breadwinner in the family. Also, if in case of a house fire or when your get into a car wreck, you may also protect your assets. Insurance companies are mandated to pay you for legitimate claims so you are assured if these incidents happen. You won't have to worry about money matters or at least get a sum to rebuild your house and get your life back together.
We've all made money mistakes in our lives. You might be relieved to know that even financial experts have went through mistakes too. There is no such thing as "I am not good at money" because money management is a skill. Some may find it easy, some may not but ultimately, we all need to learn how to effectively manage our finances in order to be prepared for what the future may bring. Taking time to master key principles will pay off for years to come.
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