Whether you’re living paycheck to paycheck or managing a healthy nest egg, there are certain classic money blunders you’ll want to avoid. Between hidden fees, budgeting mishaps and poor communication around finances, it’s almost too easy to throw money away. We’ve compiled nine helpful reads that outline the most common financial mistakes and tell you how to get around them. With this advice in hand, you’ll be well prepared to navigate any rocky financial waters ahead. We bring you some of the worst financial mistakes people make.
Here are some sure-fire ways to lose money, and how.
These mistakes can be avoided if we keep in mind certain things be focused on our financial goals. Planning for the future is most important and we should never, ever, underestimate the power of compounding! This can make your financial future strong.
If your outflow exceeds your income, then your upkeep will be your downfall.
The first step to gaining wealth is spending less than you earn — it’s vital to making any financial progress. So when you overspend, you’re doing the most damage possible to your finances.
Refuse to diversify
If your company has to shut shop, then you have two problems: You don't have a job, and your savings are now worthless. Not diversifying risk is to deny yourself the cheapest investments. You just invest in different things that don't necessarily go up and down together. You'll have a little debt, a little equity, a little gold, some (but not too much) real estate, and so on.Too many people have their wealth in fixed deposits, and their idea of diversification involves choosing different banks.
Living On Credit
One sure way to keep yourself in debt for the rest of your life is to live on credit. Finance companies and big banks have us in a spin believing we MUST have credit in order to establish a credit rating for ourselves – and while this may be true in some countries, it’s not the same for all.
If you’re at the point where you need to establish a credit rating, speak to a professional and independent advisor who can tell you exactly what to do.
If you’re living on credit and always getting loans or credit cards to pay for things, stop. Now. Find some help to establish a realistic budget for yourself where you can still live, but not have to keep putting things on credit. It’s not easy, but it’s totally worth it.
Not having an emergency fund.
An emergency fund is your first line of defense against unexpected financial problems. If you don’t have an emergency fund, you will likely have to borrow money when an emergency pops up. And as we’ll see soon, borrowing is an even worse money mistake.
Not having enough insurance.
I think of insurance as a very big emergency fund that supplements your cash emergency fund. It covers the things you couldn’t save up to cover in advance, helping to replace/protect the largest assets you have – your career, your home, your investments – if you experience a major accident, death, or injury.
Waiting to invest
There are three factors that determine how well your investments (savings) perform:
- The amount that’s invested (how much is invested)
- The return rate on your investments
- The length of time they are invested
Most of what we see in the press deals with getting the best return on your money. But actually, the factor that most influences the value of your investments is the time you have it invested.
And the longer you wait to save and invest, the more you’re costing yourself.
Neglecting to make a will.
Without a will, guess who decides what happens with your finances and your kids? The state! Do you really want to let your state decide these issues for you? To avoid this bad money move, you need a will and the other documents that account for good estate planning – probably at least Patient Advocate and Medical Records Release documents for most people. And be sure to update them regularly as your life situation changes.
Spending first, and saving later
A common misconception people have is that our savings comprise what we have left over after our monthly spending. However, this approach has it backwards—it’s better to first define an amount you wish to save every month and then budget your spending accordingly—this not only helps with cutting out the excessive spending mentioned earlier but also helps focus your savings goal and achieve them within a fixed timeframe.