Money or financial mistakes occur all the time and you’re not alone if you have a few financial regrets of your own. In fact, a 2019 study by finder.com shows that an estimated 126.5 million American grown-ups admit to having made a money mistake at least once in their lifetime.
While money mistakes are arguably subjective, you might lament having so much debt. However, they’re a handful of missteps you can avoid.
Here are Top Money Mistakes and How you can avoid them
Believing that it does not Count
You charge little, you have no savings, you live up to date. It is shown that many young people adhere to this philosophy and believe that as long as they do not remain in the red, the rest does not matter. Error. “Any small gesture can go a long way,” says Eric Roberge, of Beyond your Hammock, a financial strategy and planning firm. In other words, if you can only save €100 per month, at the end of the year you will have €1,200, a small quantum that may get you out of trouble on occasion, or give you some joy. Do not underrate your capability to create something no matter how slowly you start.
Purchasing a car beyond your means.
A BMW can look great on you, but it can also disrupt your peace of mind. Buying a car that has nothing to do with your purchasing power has no other meaning than wanting to appear something that it is not. The health legal psychologist Marina E. said in one of her famous quotes, that anyone who is concerned about appearances will always tend to invest their energy and money in it. If your economic possibilities allow it, there is no problem, but if you spend more than you can, you will be forgetting that the important thing is in you and not in giving a different image of who you are.
Lack of an emergency fund
If the pandemic year taught us anything about our finances, it’s the importance of having an emergency fund to tap into when unexpected events arise similar to a job loss or unplanned medical bills.
When you don’t have any extra cash set aside, you’re forced to utilize expensive ways to fund your living expenses. This may involve stacking high-interest credit card debt, taking out a cash advance or counting on payday loans. Accessing many of these financial backup options will also be tied to what type of credit score you have, says Leslie Tayne, a debt-relief attorney at Tayne Law Group. The type of credit score aids lenders such as banks in deciding how much credit to give you and what interest rate to charge you. You may end up not receiving the best interest rates if your credit score is low.
Indeed saving a small amount, such as $20 a week, will yield $1,040 at the end of the year, which implies that starting small in building up emergency funds will go a long way. Some financial experts have made assertions that building an emergency fund before paying off your credit card debt is a bad one, while others recommend prioritizing your emergency savings before carrying out your debt payoff.
Funding a Lavish Lifestyle
We have all heard the logic before; ‘I make more money now, so I can afford it. I worked hard for this salary increase, so I deserve it,” Do you know that while celebrating milestones can create a positive feedback loop to help you reach your long-term goals, it can also lead to overspending the newfound windfall.
Preferably, instead of buying new expensive things when you can afford them, take that extra cash and prioritize your short and long-term financial goals first. Make sure you have a plan for any increase in income such as paying down debt or increasing your savings. Then whatever you have left can be used to increase your standard of living.
Paying off the wrong debt first
If you have a long list of debts to sort out, student loans, car payments to make and even a mortgage inclusively, it can be difficult knowing which to tackle first. However, financial advisors caution that you should be careful which debt you prioritize paying off.
When working on your debt payoff plan, start by writing down all your debts and the corresponding interest rates. I recommend tackling your highest interest rate debt first, like credit cards, then moving onto lower rate debt, like mortgages. Brenton Harrison, a Tennessee-based financial advisor at Henderson Financial Group, advises that “Paying them off not only improves your credit score but also frees up room in your budget to contribute more toward savings and investments.”
Utilizing Credit Cards Without Control
Banks have made it very easy for us. According to the study by the Complutense University of Madrid, 42% of young people (between 18-29 years old) use this form of payment. Cards are not usually friends of savings in a way, since unconsciously you are less aware of your expenses. In addition, there are a thousand and one ways that banks provide us (such as a simple credit card) with which to be able to pay when, in reality, you do not have the liquidity. What happens the following month? As much as you can, avoid this money mistake by paying in cash if you know you find it difficult controlling how you pay off using the credit card.
Buying a House (at all costs).
The big question: continue to rent or purchase a house? It’s not that acquiring a house is a mistake in itself, but it will be if it’s going to be purchased on a whim and not out of necessity. It will be a terrible mistake when it compromises a significant part of our income and generates a lot of uncertainty.
Society has laid unnecessary pressures on us to purchase products that we do not need. In the case of owning a house, we have traditionally been taught that buying a house is an investment for the future, which is not totally wrong but this argument loses value when you enslave yourself to a mortgage that’ll last beyond retirement.
In other to avoid money mistakes, we need to realise that having economic stability, makes it easier for us to feel better psychologically, more stable, calm, and gives us a greater sense of control over our lives.
Most importantly, put down a plan that allows you to say ‘no’ to these money mistakes so that you may say ‘yes’ in the future.