You don’t need to be a financial advisor to make a financial plan. We all make financial mistakes too.
However, there are some common financial mistakes that you can avoid easily to save substantial money in the long term.
1. Not having a financial plan
The biggest financial mistake you can make is not having a financial plan at all. You remain directionless without a plan.
An excellent way to create a financial plan is to divide it into smaller and achievable objectives. It will allow you to set realistic targets and revise as you go.
2. No emergency fund
One of the biggest reasons many people fall into a debt trap is not saving for an emergency fund.
When you keep living paycheck to paycheck, you may never start saving and when an emergency strikes, you may find yourself resorting to high cost products such as payday loans or emergency loans. Prioritize building an emergency fund and start contributing straight away.
Start small in the beginning and gradually increase the emergency fund size to maintain healthy savings for up to one year of household expenses.
3. Spending without a budget
A budget is an effective tool to gain control of your daily and monthly spending habits. You’ll know exactly where your money is coming from and where it is spent.
You can try different budgeting approaches and stick to the one which suits you the best. The important thing is to stick to a budget and analyze your performance regularly.
4. Debt management mistakes
The best way to manage your debt repayments is to start paying off the highest-interest debt first.
Then, shift your focus to the next one and gradually remove all high-interest debt installments from your monthly budget.
Devote the highest proportion of your debt installments to these toxic debts and save substantial money in the long term.
5. Depending too much on borrowed money
Once you start relying on borrowed money, you’ll keep rolling debt instruments one after another.
Often people apply for several credit cards for convenience. You’ll incur interest expenses and other charges on these cards too.
Utilize cash as much as possible. Avoid borrowing money unless you can’t fund an expense with your regular income.
6. Always preferring new over used items
From electronics to buying a vehicle, consumers almost always prefer new items over used ones.
Think of a used family car in your budget and compare the total cost against a brand-new one for the same make and model.
Apply the same method across household purchases and start buying refurbished or used items whenever possible to save substantial money.
7. Not balancing the debt, savings, and investing
Prioritizing debt, savings, and investing plans is always challenging.
When you have a high-interest debt instrument, prioritize it before investing. Never stop saving from your monthly income even if it’s a small piece.
Build an emergency fund first and then start investing. Make a long-term investment plan including your retirement savings to maximize the investment benefits.
8. Delaying retirement contributions
It’s a common financial mistake to defer retirement planning. You’ll never be able to catch up with the lost time and money.
Retirement planning should begin today rather than tomorrow. Start contributing to your retirement plans as early as possible.
For better results, diversify your assets by including some retirement plans too.
9. Having unmonitored credit reports
An easier way to monitor your credit report is to opt for free credit reports with online services and credit bureaus.
Also, setting up alerts for your credit score changes is an effective way to keep an eye on your credit score.
Your cost of borrowing directly depends on your credit score and history. You can take steps to improve your credit score before applying for a loan or credit to avoid higher interest costs.
10. No income diversification
Relying on one income stream is a dangerous financial strategy anyway. It is like putting all eggs in one basket with your investments.
Consider diversifying your income by investing in stocks/bonds, starting a side hustle, or generating some passive income through online means.
Diversified income streams will provide you with financial stability and stay afloat during turbulent economic times.
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