Common Financial Mistakes that Will Cost You Big
Webblogers Editors Team |
April 5, 2023
| 191 Views

Financial mistakes made in your youth can create difficulties for you in the long run. It is often said that great fortune is usually lost in bad spending habits. It’s best to assume that when it comes to money, we all make mistakes sometimes that have a negative impact on our financial health.

Sometimes these mistakes are made without even realizing it! Some common mistakes people make are not investing regularly, not planning a monthly budget, or having huge credit card debt. If you’ve been successful in overcoming one of these, great!

However, you are not out of the woods yet. There are still financial mistakes you can make without even being aware; here are some of them.

Spending more than you can afford

Excessive spending is one of the biggest financial mistakes you can make. It’s not a big deal if you’re spending a few extra bucks every week on ordering food or buying clothes you don’t need; But, multiply this amount by 52, and that’s the amount you’re wasting every year! If you can save even half of it and add it to your savings, you can build a nest egg for yourself for a rainy day. It is important to have a monthly budget; Otherwise, you’ll end up spending more. Plus, readily available credit cards make it easy to spend more than you can afford; So avoid swiping your card as much as possible.

Buying a new car

It’s important to save money to buy a car, not to take out a loan or borrow money because you pay interest on a depreciable asset. The best advice is to shop within your budget and means. If you have to take a car loan to buy a car, buy a small SUV that consumes less fuel, not a bigger SUV which will cost more, consume more fuel as well as cost more maintenance. Cars are expensive, and if you’re buying a bigger car than you need, you’re burning money that could be saved for other expenses or paying off debt.

 

Rushing to buy a home

Buying your own home is one of the most important financial decisions you will ever make. However, it is important to understand how much you can spend on your home. A home loan is one of the biggest loans you can take, and the decision to invest in your home should be taken when you have enough savings and can easily pay your monthly home loan EMIs. If you do not have a home loan, you will be less stressed and will not have to deduct a part of your monthly salary in EMI.

 

Living paycheque to paycheque

Many families live paycheck to paycheck, and any unexpected expense can become a problem because there are no savings. Relying only on your monthly paycheck can be a difficult situation because if you miss a single paycheck, you will be in a precarious position. It would be best if you have at least six months’ worth of your monthly expenses in your bank account, ideally in case of an emergency. In such a situation, loss of employment or changes in the economy can force you to borrow and get stuck in an endless cycle of debt.

 

Not investing in your future

Making monthly contributions to your savings account can help you build a corpus for rainy days. There can be many unexpected expenses like car repairs, home renovation, an unplanned vacation, medical emergencies, and more. It would be best if you build your savings to manage these unexpected expenses. Understand your risk profile and invest in various savings schemes. It is ideal to have a balanced portfolio with a mix of equity and debt funds and traditional savings schemes.

 

Borrowing money

Many people have a habit of borrowing money from friends and relatives for large avoidable expenses and paying it back later, even if they have enough money to make ends meet. While many times close family members do not demand interest, distant relatives or acquaintances may. It also usually negatively affects personal relationships and causes conflict. It’s best to avoid borrowing money from friends and family and turning to authoritative sources of credit when you need it.

 

Paying off debt with your savings

You might think that you have a mortgage at 15% interest and your savings plan is offering a return of just 7%, so it makes sense to pay off your debt with your savings. However, it is not that easy. If you withdraw money from your savings account, you will lose the interest earned by compounding as well as the penalty for withdrawing money from your FD or retirement fund. It is ideal to pay off the loan when you have some spare cash, rather than prematurely withdrawing your FD or withdrawing money from your retirement fund.

 

Ignoring your credit score

A good credit score can help you save a lot of money on interest rates. The better your credit score, the easier it is to get a higher loan amount and even better interest rates for things like buying a car, home, personal loan, etc. You should check your credit score every six months. , and if any error is found in your report then correct it by spending wisely.

 

Not having insurance

It is important to have insurance, which protects you against medical contingencies. Medical insurance is the first thing you invest in after you start earning. Medical insurance is available in the market these days at affordable prices, so there is no reason not to go ahead and get one. If you have a home loan, car, or education loan, apart from medical insurance, you should also have term insurance coverage.

 

Paying full price for everything

In today’s era, paying full price as mentioned on the packaging is almost a sin. With a simple search, you can find deals and offers on restaurants, hotels, flight tickets, groceries, clothing, and even online food orders! Make sure you compare prices from different websites before making the final call, and your pocket will thank you.

 

Not saving for your child’s future

It’s important to build a college fund for your kids when they are still young. Education is expensive, and you need to calculate how much your children will need when they grow up, taking inflation into account and saving enough money to provide them with quality education in the future. Apart from this, it is also important for you to teach your children about the importance of saving money.

 

Postponing saving for retirement

When you are young and your income is low, you may delay starting a retirement fund. However, it is imperative to save for your retirement and start as early as possible. The sooner you start; The largest amount you can save. Start by saving at least 15-20% of your annual income for your retirement fund. This will help you live a life of comfort in your golden years and remain financially independent even after you stop working actively.

Lending money without thinking

Another bad financial habit is lending money without thinking twice. It’s hard if it’s your loved one or family member asking you to borrow money. In some scenarios, they may not be able to return the money you borrowed, which can cause discomfort or strain the relationship. If a close relative or friend asks for money, it may be better if you can help them figure out how they can borrow from a bank or earn some extra cash instead of lending themselves. Be honest in your assessment of their financial situation and help them in other ways before writing them the check.

Not asking for a raise

To achieve growth in your organization, you usually have to work hard and ensure that you articulate your demand for better pay. The company can give you a nominal growth of 5-7% every year; However, if you want a good hike, you have to tell to your manager. If you feel that your skills and abilities are not being rewarded appropriately in your current workplace, don’t hesitate to explore other options. Remember, when changing jobs, you have the flexibility to negotiate for a better salary.

It is important to take a step back and recognize the financial mistakes one is making. Keeping a check on your small expenses can help you to accumulate big debt. Please think carefully before adding new mortgages to your list of monthly payments, and understand that it is better to save for big purchases than to rely on your monthly salary to pay off your loans. If you have identified some of the mistakes from the above list that you are committing, make a plan to avoid them in the future and make better financial decisions.

Webblogers Editors Team

Webblogers Editors Team

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