Surprisingly, the smartest people sometimes make the worst money mistakes. The principles of behavioral economics guide most financial moves that people make. Unfortunately, some people make financial decisions based on their emotions, rather than on rational thinking.
Surprisingly, the smartest people sometimes make the worst money mistakes. The principles of behavioral economics guide most financial moves that people make. Unfortunately, some people make financial decisions based on their emotions, rather than on rational thinking. Learning to balance your finances and meeting your short-term and long-term financial obligations is an essential skill. However, making these money mistakes makes it harder than it should be to achieve your financial requirements.
Fortunately, you can make these mistakes and set up yourself for economic success in the future by avoiding these common mistakes.
Spending every penny
The secret to avoiding most money mistakes and achieving your financial goals is by saving money. However, you cannot save money when you spend everything you earn. You can avoid spending all your income by focusing on your dreams and using them as motivation. Also, ensure that the dream that comes top in your priority list comes first on your disposable income. The other trick to avoid this common money mistake is to know your income and expenditure.
You can consider dedicating 50 percent of your income to home necessities, such as debt payments, food, housing, transportation, and medical care. Allocate five percent of your income to a savings account to take care of one-off and unexpected expenses like replacing your gadgets and attending events. Also, contribute 15 percent of your pretax income to retirement savings.
Not saving for retirement when you are employed
Most people have reasons, or rather excuses for not saving for retirement. However, you need to save for your retirement now that you are making money because you will be in a position in the future to make money, yet you will still have to support yourself. Therefore, you need to set aside part of every dollar that you earn now that you can work towards funding your non-working years. You can open an account with the retirement authorities if your employer does not provide a retirement savings plan.
Running up credit cards or carrying a balance
You have at some point in life build up a pile of credit card debt. A shopping trip here, dinner here, road trip here, and before you realize it, the minimum payment on your credit card balance takes a substantial chunk of your paycheck. Consequently, interest charges add up, which saps your ability to save towards your financial objectives. The best way to avoid this mistake is to make timely payments and avoiding carrying balances on your credit cards from one month to another. Also, you can consider negotiating lower interest rates than before if you do not have balances. Also, if you frequently rely on your credit cards to cater for essentials or unexpected expenses, you should review your spending habits and work towards having an emergency fund.
Not having life and auto insurance
You should consider what happens to your family or children in the event of your death. You need to invest in an adequate life insurance policy to ensure that your family is protected in the eventuality of your sudden death. Also, you should avoid driving around with an insured car; it can make you broke before you even realize it. You should search around for the best auto insurance near me. The truth is that you don’t save money by avoiding insurance. Instead, you risk being bankrupt.
You need to ask yourself why you have constant payments and consider whether or not you require the items. Items, such as fancy gym memberships, cable television, and music services usually force you to pay continuously, but you are left owning nothing. You can consider coming up with a leaner lifestyle to reduce the never-ending payments to fatten your savings. Similarly, you should avoid spending too much money on your house. Unless you have a huge family, you should avoid living in a big house because it will eventually drain your finances.
Lee Flynn is from the Wasatch Mountains near Salt Lake City, UT. After Lee spent years preparing himself, his home and his family, he decided he had to do more. In his free time, Lee helps educate those who want to do the same. Through small local workshops and articles, Lee trains and teaches others on home preparation, food storage techniques, wilderness survival and self reliance. After obtaining a bachelors degree from the University of Utah, Lee moved to the Salt Lake Valley where he now lives with his wife and daughter.