Managing our money can be easier said than done, however, it’s always a good idea to stay away from things that can cause long term impact and define big decisions in our lives. To help you stay clear from such money mistakes, we thought we would share 8 common “what not to do” and how not to do it.
1. Getting Behind on Your Payments
When you fall behind on your payments, you can create cycle that is hard to break. You will end up paying late fees and other charges each time you fall behind. The first thing you need to do is catch up on your late payments and then address any spending, budgeting or income issues that have caused you to fall behind. This can hurt your credit score and make it difficult to qualify for a mortgage when you are ready.
2. Not Having a Plan to Find a Better Job
Another big financial mistake is choosing to stay at a dead end job. This can hurt you financially, because it does not give you room for advancement. While you may take a job as a stepping stone or because you are desperate for work, you do need to have a plan to move on to a better job. You need to determine when the time is right to find a new job, as well as the skills that you will need to find a job better suited to your interests. Begin preparing so you can qualify for your new job.
3. Not Having a Budget
When you do not have a budget, you do not have control of your finances. Failing to budget month after month means that you are not taking control of your financial situation. Without a budget you can make decent money and still struggle to get by. It can be difficult to reach your financial goals when you do not have a solid budget in place. Take the time now to set up a budget, and continue to do it every month. You can begin to make better financial decisions if you are budgeting and you know exactly where your money is going each month.
While it’s great to know where every dollar will go, the reality is that you can’t predict everything. For this reason, when you create your budget, include a small “slush fund” that could cover that $100 unexpected car repair or surprise doctor’s bill. It’s a little cushion that will also prevent you from overdrawing on your checking account, and paying unnecessary financial fees.
4. Never Setting Financial Goals
Your financial goals give you steps to work towards. These goals should be things like home ownership, starting your own business, retirement. If you do not set specific goals, you will flounder. You may never get to the point where you have a down payment save for your home or be in a good position when it is time to retire. Take time to set solid financial goals and review them each year.
5. Making Financial Choices Out of Fear or Pressure
Another common mistake is to make a financial choice when you are afraid or you feel a lot of pressure to act right away. When you are afraid, you may not be considering all of the options, and you may end up making a mistake. It is important to take a step back and consider all of your options. You may want to talk the decision over with someone you trust. Another financial mistake is to give into pressure to take a big financial step from buying a new car to purchasing a home to getting married or having a child. You may not be ready for these steps and giving into pressure will not benefit you financially. It is okay to make each financial decision based on your own timing, goals and needs.
6. Waiting to Start Saving Until You Have the Money
Rather than thinking of savings as money that you sock away and never (get to) spend, think of savings as money to spend later. Then find ways to make setting the money aside easier, e.g. automatic transfers on payday so that you don’t even see the money in your bank account or putting it into accounts that aren’t attached to your debit card.
Make it easier: every little bit counts, so don’t delay starting to save until you have “extra” money – that will never happen. Start today with $20 and find creative ways to add to it, like a 30-day savings challenge. Then look for ways to avoid impulse spending and to keep your money safe from yourself so that it’s there when you need it for emergencies, vacations or a down-payment.
7. Not having enough in emergency savings
It turns out that a lot of people still only keep $1,000 or $2,000 aside for “emergency money.” This may help you with a last-minute plane ticket, but it won’t tide you over if you get really sick. And if you have what sounds like a lot more–say, $25,000–consider whether that makes sense for your income. After all, if you’re making $100,000 a year, that’s not going to last long if you lose your job.
So, you can try to..
- Accumulate six months’ worth of income in your emergency savings
- Only use it for true emergencies
- When your income or expenses change (especially if they go up), make sure to increase your fund proportionately
8. Not understanding the importance of your credit score and credit report
One of the toughest things about personal finance: getting your situation exactly to your liking takes time. And that is especially true of your credit score and credit report. These two items are essentially a record of how you’ve handled your finances over time–and they’ll determine whether or not you’ll be eligible for thousands (even hundreds of thousands) in savings when you go to make your biggest purchases, such as a car or a house.
Develop these habits now, so you’re ready when that big day arrives:
Whilst we’re all subject to making mistakes, avoiding (or planning to avoid) such mistakes can help stay on top of your money game.
Know any other “what not to do”? Leave your comments below. 🙂