Many people in the world are struggling with basic money management. Overspending, lack of an emergency fund, and increasing debt are common problems that lead many people into a financial hole.
Unfortunately, financial literacy isn’t something that’s always taught at a young age. To avoid getting struck by economic reality, read these 10 top mistakes that cause financial difficulties.
1. Not Having a Debt Payment Plan
It can be tough to get yourself out of a “debt spiral” unless you have a plan to address the debt. Debt can be a burden that you carry with you for a long time, hold you back financially, and lower your quality of life.
Loan balances can also cause a strain on personal relationships and a great deal of stress. Interest on car loans, mortgages, credit card debt can suck up any amount of money that you could be saving. Therefore, it’s important to create and stick to a plan that helps you tackle your debts.
2. Working Alone
While many people find it easy to make their own decisions, tackling financial difficulties alone (no matter how small) could be stressful.
Once you get married, you should be working with your significant other in making smart financial decisions. It’s necessary to work on your financial goals together otherwise you risk running into disagreements.
If you are not in a serious relationship, it’s a good idea to seek help from a trusted financial advisor. This way, you’ll have someone holding you accountable.
3. Not Budgeting
If you don’t have a solid budget in place you can’t confidently say you’re in control of your finances. A simple budget helps you find out where your money really goes and the amount you’re spending.
Not finding time to look at what you’re left with after fixed expenses can lead to overspending. Keep in mind that if you don’t know how much you have, it becomes hard to determine how much you should spend on things like utilities, food, etc.
4. Living Paycheck to Paycheck
This is one of the biggest problems facing many people on the payroll. Since unemployment rates are currently increasing, it often takes longer to find jobs. Because of this, it’s recommended to save up to 12 months of basic living expenses.
Consider saving with institutions that allow tax-free withdrawals and those that allow savings to earn interest. This way you can save for retirement and build an emergency fund at the same time.
Just make sure to invest your money somewhere safe and where you can access it anytime. Remember that starting small is still taking a big step.
5. Being Underinsured
Many folks choose to avoid insurance and others go for basic life insurance. But these aren’t the most strategic financial decisions.
Having basic life insurance might not be enough to ease your possibly future financial difficulties. Even with a stable job, your financial situation can quickly change — like getting seriously ill, which can lead to financial burdens.
You may want to consider one of the numerous income protection policies out there — some of which will provide you a regular income in case you couldn’t work. Although this kind of insurance isn’t always cheap, it can be invaluable if misfortune strikes.
6. Ignoring Your Credit Score
Debtors with a good credit score can save a lot of money in interest over the years. A better score attracts a better rate of interest for the money borrowed to buy things like homes, cars, and personal finance. Pay attention to your credit report and remember to clean up and build your personal score.
7. Excessively Spending
Money is lost one dollar at a time. You may not see a problem having dinner out, ordering a pay-per-view movie, or picking a double-mocha cappuccino, but it’s the little things that add up.
The money you spend on things that really don’t matter could be used to make several extra debt payments. Be more conscious of your spending to avoid wasting funds.
8. Making Financial Decisions out of Pressure or Fear
Avoid making financial choices when you feel under pressure to act immediately or when afraid. When you are fearful, you may not evaluate all the available options, and this may cost you financially. Financial mistakes can take years to fix ─ that’s why it’s crucial to take a step back and assess all your choices.
You may also consider seeking help from a trusted financial advisor. A trusted advisor can help you dig yourself out of the financial difficulties. Some trusted companies like this service offer personal loans for debt consolidation.
9. Lending Money to Family and Friends
Lending money to a friend or family member is a risky undertaking. Money can often make close relationships more complicated or put a strain on them.
Problems associated with non-repayment include loss of your money and possibly damaging a critical personal relationship. To avoid this, don’t mix lending with family and friends. However, on occasions when you want to help a friend with their financial situation you should consider it a gift.
10. Buying a New Car
While millions of cars are sold annually, only a few buyers can afford to pay for a car in cash. When you take a loan out on to buy a car you pay interest on a depreciating asset. This widens the difference between the price paid for the car and its value.
You should consider buying affordable options that use less gas if you need to borrow money to buy a car. Furthermore, having too many loans with different interest rates is a major cause of personal finance problems.
Avoid Financial Difficulties
The cumulative result of not knowing what to do leads people to make some of the biggest financial mistakes. This is because the decisions you make today can impact the rest of your financial life.
Everyone has a choice in how they manage their finances. It’s just a matter of making the right decisions a priority. So, if you’re going through financial difficulties avoiding these mistakes can help improve your finances.
For more tips and advice on finances, check out our blog.