Most of us are not taught how to handle money and only have a vague idea of how to budget, how retirement and savings plans work, the ins and outs of investing, and even how your credit history works. In our blog, we try to address different facets of money management and to present simple and clearly defined options. Understanding your financial life is something every person is capable of mastering and making personal changes that can lead to financial freedom. It’s not easy, but it is doable.
Let’s take a look at some of the most common money mistakes and how to avoid them.
Spending Every Penny With No Budget
Budgets can seem very time-consuming and confusing but they don’t have to be. They do require discipline and self-examination of spending habits. However, if you don’t know where your money is going, you can’t save any of it. The most important step you can take is to set up a budget that allows you to put aside a bit of your income each pay period, partly for a rainy day and partly for your future.
Your first step is to find out where every penny goes and what you can cut out of charge in order to free up some cash. If you want a simple budget, try to spend 50% on necessities, 30% on wants, and put 20% into your savings. That 20% then can go into a retirement account, an emergency account, or a general savings account. You may need to make some serious adjustments to your lifestyle first!
Learn more about budgeting tips here.
Overusing Credit Cards
Credit cards are super convenient. And they can make up a cash shortfall. The problem is that if you don’t pay off a credit card each month, the interest fees and any penalties add up very quickly. Get the best credit card with the lowest interest rate and fees that you can qualify for, preferably one with rewards that you will use (cashback is preferred). Pay your credit cards off with on-time payments and then keep the revolving balance at $0.
This should be figured into your budget. If you are using your credit card to make up for not enough income, you need to see where you can cut expenses in order to live within your income and still have enough to put into savings.
Housing, Clothing, Driving
This section means that you need to look at your housing situation, how much you are paying for your fashion, and what vehicle you are driving. All these are a need, but paying for too much house/apartment, the “right” address, or the fanciest cars are all wants. These costs can usually be cut without sacrificing your life. A smaller house or one with fewer amenities can save you a huge amount of money.
As you eliminate your debt and set up a savings and retirement plan, you will be able to afford it without jeopardizing your future.
No Emergency Fund
One very important action to take after you get your budget sorted is to set up an emergency bank account. Your first goal is $1,000 and your final goal is three to four months of income. The money within the emergency fund is for emergencies, car troubles, unexpected medical issues, getting fired or laid off. It’s not for a new outfit or a night on the town. By having an emergency fund, you can pay for most smallish emergencies without using your credit cards and creating more financial issues for yourself.
Impulse Buying
Impulse buying is buying without a plan to need or the means to pay for it. It could be anything from the cute dog at the pet store to furniture to gifts to cars and houses. It is fun to shop. The problem is that overshopping leads to overspending. If you know you will need an expensive item, take the time to look for the best price, the one that most closely fits your needs, and one that will fit. Then plan for it and save up.
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