6 Common Financial Mistakes to Avoid

financial mistakesResearch suggests that over 60% of Americans view money as a source of stress and anxiety. With many people facing financial pressures, it’s beneficial to explore the most common problems and try and identify effective solutions. Below are some of the top financial mistakes to avoid in life, and some tips to help you take control of your finances. 

1) Overspending and Living Beyond Your Means

We’ve all been in a situation where we hand our card over to buy something we know we really can’t afford. While it’s nice to treat yourself from time to time, getting into a habit of overspending can be incredibly perilous.

Living beyond your means encourages you to adapt to a way of life you can’t sustain. And, it will undoubtedly increase the risk of amassing substantial debts. Isolated incidents can be accounted for by making cutbacks in other areas. But, if you’re spending more than you earn every month it’s a good idea to start making changes now.

Consider what is really essential and think carefully before you make purchases. It’s not always easy to adjust to life without luxuries, but the sooner you reduce spending, the better.

It’s particularly important to avoid using credit cards and store cards if you don’t have sufficient funds in your checking account. These cards usually have high interest charges, and it’s very easy to see them as a backup option. The more you spend, the more difficult it will be to clear your debts further down the line. If credit card spending is an issue, it may be worth considering giving your card to a trusted friend, family member or partner, or even cutting it up so that you don’t use it anymore. 

Related: How the Debt Snowball Really Works (FREE Tool Included for YOUR Debt Snowball!!)

2) Failing to Budget

Drawing up a budget might not seem like the most exhilarating use of your time, but it is so important for keeping track of spending (and avoiding future financial mistakes).

Today, you can go into a store and tap your card, or pay a bill without touching a single button via direct debit. When you’re not writing cheques or physically handing over cash or coins, it can be tricky to keep up with outgoings.

Save Hundreds of DollarsBudgeting enables you to:

  • monitor your income, 
  • to see where your money is going, and
  • to set limits that reduce the risk of overspending.

You can use traditional methods, create a spreadsheet or use apps to manage your funds. The aim is to compare your income with any outgoing payments. This will help you calculate your disposable income.

Budgeting is also a great way to identify areas where it is possible to make cutbacks.

  • You might have forgotten about a subscription you’re paying, or
  • you might not have noticed that your car or pet insurance premium has increased significantly.

Use your budget to analyze how you spend your money, to establish how much you can afford to spend each week and to save more. 

Related: How You Can Save Hundreds of Dollars (Free Budget Tool Included!)

3) Borrowing Endlessly

Borrowing money can be incredibly beneficial if you need cash on a temporary basis, or you’re taking out a loan or a mortgage to buy or renovate a house, for example.

The trouble is that borrowing carries risks.

If you have a credit card, or you’re taking out loans on a regular basis, you might lose track of how much money you owe and who you owe it to. There’s also a risk of finding yourself in a situation where you’re in too deep and you can’t see a way out. When you take out a loan, or you spend money on a credit card, interest fees are applied. The higher the balance, the more difficult it is to pay off debts. If you do want to borrow money, make sure you can cover the repayments and set spending limits. 

Related: The Average Credit Card Debt is Rising. Why?

4) Failing to Plan Ahead

Nobody wants to think about what will happen when they depart this earth leaving loved ones behind. But, the reality is that we don’t know how long we’ll be around for.

  • If you have a family,
  • you have cash assets,
  • you own property, or you
  • run a business…

…it is vital to try and future-proof and protect your finances. Ignoring what could happen to your family if you die is one of the biggest financial mistakes one can make, in my opinion.

creating family wealthMaking a will, investing in life insurance and working with estate planning experts can help to shield your family and give them peace of mind if the worst happens to you. If there are issues with your will, or you have family members that don’t get along, probate litigation lawyers may be called in. If possible, this is a scenario that should be avoided.

  • It’s best to plan ahead,
  • to make your instructions clear, and
  • to secure your finances as best you can.

Another important aspect of planning ahead is setting up an emergency fund. If you lost your job, work dried up or you had to pay for your car or home to be fixed tomorrow, would you be able to cope? If you don’t have any savings, and your bank balance is low, now is the time to start contributing to a pot you can use if times are tough or you have bills that come out of the blue. 

Related: Bestow Review: Term Life Insurance for Busy People

5) Letting Your Money Lay Idle

If you have savings tucked away, there are ways of growing your money and making your cash work harder. Instead of transferring a sum on a monthly basis and letting it lie idly in your account, it’s worth exploring your options.

You could switch to a high-interest savings account for money that you want to keep safe and potentially use in the short term.

cutting household expensesFor longer term savings, you might want to thin about investing some of your funds.

There are various different types of investment, and some may suit you better than others. Stocks and shares can be confusing to a novice trader, but if you start small and seek expert advice, you might find that this is an effective way to boost your income.

If you are looking for help with buying or selling shares, make sure you choose a reputable company with an excellent track record.

Another option that may be on the table is buying property.

Real estate investment can be lucrative, but you have to make the right calls at the right time. Keep a close eye on the market, and look for positive signs of growth and increasing demand. If the economy is shrinking, this is a red flag for sellers. When you are looking for an investment property, use your head rather than your heart and establish a clear idea of who you want to sell or lease to. 

6) Splashing the Cash Every Payday

Many of us breathe a sigh of relief when payday comes around. But, sometimes we go overboard and celebrate in style.

If you’re one of those people who goes on a shopping spree or treats all your friends to a drink at the bar, try and avoid blowing your wages as soon as they land in your account.

  • Draw up your budget,
  • set yourself limits, and
  • set up a transfer to your savings account on payday.

This will help you build up a pot you can dip into if you need to further down the line. And, it will also reduce the risk of overspending. 

Avoid Financial Mistakes…Start Today!

We all make mistakes when it comes to spending and saving, but some can have much more profound consequences than others. If you’re hoping to improve your financial situation and eliminate money worries, try and avoid the common mistakes listed above.

  • Keep an eye on spending,
  • make a budget every month,
  • plan ahead,
  • seek expert advice if you’re struggling with debt,
  • and try to avoid living beyond your means.

Making changes can help you save more, spend less and enjoy peace of mind. 

Are you ready to fight against your future financial mistakes? 

Money

AUTHOR Derek

My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.

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