Top 5 Most Common Financial Mistakes
Here, we’ll look at some of the most common mistakes people make with their money that can put them in a tight spot. Even if you’re already having trouble with finances, avoiding these mistakes could help you stay financially solvent.
1. Excessive and Frivolous Spending
Sometimes millions of dollars might be lost by only spending a few more here and there. Every small thing, like a double-mocha cappuccino, a restaurant meal, or a pay-per-view movie, adds up.
The average American spends $1,300 a year on dining out, or $25 per week. That’s enough money to make an extra payment on a car or credit card, or several smaller ones. Avoiding this error is crucial if you are experiencing financial difficulties; after all, if you are close to foreclosure or bankruptcy, every dollar counts more than ever.
2. Never-Ending Payments
Stop and think about whether you actually need the things that keep you making payments month after month, year after year. Paying for things like cable TV, streaming music, or a premium gym membership can be a never-ending drain on your finances with no tangible benefits. If you’re experiencing financial difficulties or you simply want to save more, cutting back on your spending and living frugally can help you immensely.
3. Living on Borrowed Money
In today’s society, it’s not uncommon to use a credit card to pay for necessities. Despite the fact that more and more people are ready to pay interest rates in the double digits for things like petrol and food that will be gone long before the bill is paid in full, doing so is not financially savvy. The cost of purchases made with a credit card is often inflated due to interest charges. One of the risks of relying on credit is going into debt.
4. Buying a New Car
There are annual sales in the millions of new cars, but few buyers who can actually pay cash. But if you don’t have the money on hand for a brand new car, you might not be able to afford one even if you get a loan. Indeed, it’s not the same as being able to buy the car if you can’t afford the payment.
In addition, when a person takes out a loan to purchase a car, he or she is paying interest on an asset whose worth is decreasing over time, which makes the gap between the price paid and the value of the car even wider. To make matters worse, many people lose money every time they trade in their car, which is every two or three years.
It’s true that sometimes a car loan is the only option, but how many people actually require a seven-seater sport utility vehicle? Costs associated with owning, insuring, and operating such cars are high. It may not be beneficial to buy an SUV unless you often tow a boat or trailer or depend on one for your livelihood.
Consider a vehicle that gets better gas mileage and has lower insurance and maintenance costs if you need to buy a car and/or take out a loan to do so. Autos are costly, and if you buy more vehicle than you need, you may be wasting money that could be put toward other goals, such as debt repayment or savings.
5. Not Investing in Retirement
If you do not get your money working for you in the markets or through other income-producing investments, you may never be able to stop working. Making monthly contributions to designated retirement accounts is essential for a comfortable retirement.
Take advantage of tax-deferred retirement accounts and/or your employer-sponsored plan. Understand the time your investments will have to grow and how much risk you can tolerate. Consult a qualified financial advisor to match this with your goals if possible.
Conclusion
To avoid the problems of overspending, it is best to start by keeping track of the small purchases that add up rapidly before moving on to the larger ones. Be cautious about taking on additional debt, and remember that just because you can afford the payments doesn’t mean you should. The last piece of advice I can give is to set aside a regular amount of money each month to save, and to invest some effort into creating a long-term financial strategy.