We all make mistakes, right?
It’s often said that the good thing about making mistakes is the lessons you learn from them. But what if you don’t know what you’re doing is a mistake? How can you learn from something you never realized was a mistake?
Sometimes, we realize the mistake in time to change and rectify the situation before too much harm is done. But what if we don’t realize the mistake until it’s too late to do anything about it?
When it comes to money matters, many people make fundamental mistakes. The sad part of this is that most of these people have no idea they are making mistakes that could have a huge impact on their lives.
So, I’m telling you about the 6 most common financial mistakes people make, why they are bad and what you can do instead. After you’ve read this article, you will be able to identify 6 things that could be affecting your financial security and you’ll have the knowledge to turn things around.
Financial Mistake #1: Spending.
Financial security is more about spending than it is about saving – sounds crazy, doesn’t it? The fact is, unless you can control your spending, you won’t have any money to save or invest, so you won’t have the comfort of financial security. Spending less than you earn is non-negotiable.
To be in control of your spending, you must know the difference between wants and needs. Keeping a tight control over spending on ‘wants’ leaves you enough money for ‘needs’ and savings.
Sensible spending tips include – avoid impulse buying; never shop when you are bored, you’ll over-spend and impulse buy for sure; know how much you have to spend on different areas and don’t spend money you don’t have.
Financial Mistake #2: Not having a budget.
I know, it seems too hard and boring, but a good budget is the best tool you have for creating financial security. If you try to mange your money without a budget, you will be doomed to a life of debt, never having enough money and retiring without sufficient funds to live a decent life.
Financial Mistake #3: Thinking you have all the time in the world to save for your retirement.
Many people do successfully begin retirement saving in their 40s and 50s but you will find it so much easier if you start early on in your working life. Make a decision to take out a small amount from every pay packet you ever get. Start small, have it automatically transferred to a savings account and watch that compounding effect boost your dollars. As you advance through your career, increase the amount you save by committing to a percentage of your salary; financial experts recommend a minimum of 10% saved throughout your working life. If you’re a late starter, you’ll need to save 20% to 30% to put away enough to fund your retirement. Take advantage of all the retirement accounts at your disposal.
Financial Mistake #4: Buying more house than you need.
When we start out, we think we should have the same standard of things our parents are currently enjoying. But if you talk to them, very few started out where they are today. When you buy your first home, it doesn’t have to be in an expensive neighborhood, unless you can afford it. You don’t need a huge 5 bedroom, 4 bathroom house either when you just start out, especially if there are no children yet. Start small; buy a house you can afford the mortgage on; when you earn more and can afford to repay a bigger mortgage, up-size. This same principle also applies to cars, furniture, appliances etc.
Financial Mistake #5: Your attitude to money.
Money is not the goal in life; money is simply a tool to help you live the life you want. Having a ‘poor’ mentality is counter-productive; focusing on what you don’t have is never going to help you get what you do want out of life. Comparing your financial situation to others will just make you miserable. Focus on small positive steps that you can take to improve your financial situation. Be firm with yourself about changing bad habits that are preventing from achieving financial security. Having a complacent attitude to finances is fatal.
Financial Mistake #6: Not having an emergency fund or contingency plan.
Even the best laid plans can come unstuck. What if you were injured and couldn’t work for 6 months – how long would your money last? Things happen that we don’t plan on and if there’s no emergency fund or safety net, things can get pretty nasty very quickly. Saving a regular amount for an emergency fund is a vital step in creating financial security. Like your retirement savings, this should be automatically transferred to a specific account and left alone until you have…..an emergency! Make sure you are fully covered by the most appropriate insurances to help in an emergency.
So, how did you go? Are you guilty of any of these common financial mistakes?
That’s OK; learn from your mistakes and take steps to correct the situation now that you know how. Enjoy your new, improved financial security!