Isn’t it ironic that while earning money is hard, spending it is easy? There are people who have practiced good habits regarding finances at very early stages in their lives and these are the ones who often survive a personal disaster or live a good retirement. On the other end of the spectrum are those people who just have no clue about managing their finances.
There are common mistakes that can ruin the flow of our finances. Sometimes, when you think that you’re perfectly handling your hard earned money well, you’ll realize in the end that you’ve been wrongly investing or spending luxuriously.
The list below shows the common mistakes people make when it comes to managing their finances, as well as the best way to fix them.
- Not saving for retirement while you have a job. It’s easy to come up with a lot of excuses when it comes to saving for retirement. People who are in their 30’s would say they’re too young to even think about it. But the truth is, it’s better to start while you are young. This also gives you an advantage because there’s more time and you eventually end up saving more. Apart from that, take advantage of the fact that you are employed. Save while there’s a source of income because there might come a time when your job won’t be there.
- Not having a plan to get out of debt. Even if your friend’s credit card debt is worse than yours or you tell yourself that you’ll only pay how much you want to pay this month, this kind of thinking will not make it easier for you to escape from debt. When it comes to debt, prevention is always better. Make sure you are not spending more than what you’re earning. Decide how much you’ll allocate for debt payments and stick with it.
- Not having a budget. Budgeting your money makes it easier to see where your money is going. Doing so will help you plan in advance of where you need to spend and what you don’t need to buy. There is a finance rule that is flexible enough to fit any kind of budget. The 50/20/30 rule says that from your pay, you allocate 50% to essential expenses, 20% to financial priorities and 30% to lifestyle choices.
- Living paycheck to paycheck. Once you have a budget for everything, it’s ideal to include an emergency fund for things that might accidentally happen. Let the amount pile up and spend only when you really need it. If left unspent, you can add it to your savings.
- Not having emergency savings. The rule is, you should save up at least six month’s worth of income in your savings and only use it for serious emergencies. When your income changes, make sure to also increase your fund proportionately.
- Taking a car you can’t afford. There are a lot of people who will take a car and agree to monthly payments that they can’t cover. This will leave them with fewer choices when it comes to other bills and loans that they have to pay. On top of that, they also forget the other expenses that are needed in getting car. Things like car insurance, maintenance and gas can add up to expenses. Before taking a car ask yourself some questions, “Do you need a car right now?” and “Does it fit in the budget?”
Michael H. Morgan is a copywriter and editor who enjoys the challenges of creativity and attention to detail. He writes about a wide variety of topics of interest in the field of technology and current trends in the industry and creates only original content. He also writes about telecommunications and lately concentrates on phone service providers for RingCentral.