When it comes to dealing with money, we all have certain habits that determine how we deal with money in our life.
And because we’re human, we are prone to making mistakes.
But what differentiates successful people from everyone else is the ability to learn from the mistakes and thus adjust our behavior.
So if you’re looking to build wealth, then you first need to understand that it takes time.
Every decision that you make in your life is one step to helping you improve your financial health.
But in order to really understand the importance of forming good habits, you first need be aware of the mistakes.
So in this article I share with you my top personal finance mistakes you need to avoid.
Here’s a quick look at my 10 Personal Finance Mistakes to avoid:
- Spending more than you earn
- Not having enough emergency savings
- Not having retirement savings account/ 401k or IRA
- Treating retirement savings like short-term savings
- Paying bills late
- Not having health insurance
- High interest rate borrowing
- Co-signing a loan
- Getting hustled
- Beating yourself up for making a bad decision
1. Spending More Than You Earn
This is maybe the most important advice since this is where most people get themselves in trouble.
The more you spend, the less you have to save for the future.
If you’re someone that finds themselves wondering why they don’t have any money at the end of every month, it could be due to you not living within your means.
If you think about it, the math is pretty simple. If you make $5000 and spend equal or more, then you won’t have any money.
So it’s important to make sure that you are developing good spending habits.
Although this doesn’t happen overnight, each day you do this will go a long way to making sure you live a financially healthy life in the future.
2,3, and 4. Not Having Enough Savings
I wanted to combine the next three since they all involve savings. The second most important thing that gets people in trouble is lack of savings.
Once people get done with spending, they quickly learn that they don’t have anything left to save.
A big reason for this is due to lack of planning. Many people like to live in the now and worry about the future when they get there.
But they quickly learn that it’s usually too late by then.
The first step of saving is to have a goal that factors both the short term and long term.
Short term being an emergency fund that has at least 2 months of living expenses, and long term being for retirement.
To be more specific about retirement, this should continually be funded throughout your life.
Therefore allowing you to take advantage of this amazing thing called compound growth.
Paying Bills Late
One of the best ways to damage your credit score is by paying your bills late.
Not only that, but a damaged credit score will cost you thousands of dollars in the future if you ever decide to apply for a loan.
Therefore if you plan on improving your overall financial health, it’s important to understand the impact a credit score can have on your life.
Not Having Health Insurance
I’m sure you’ve heard the phrase it’s better to have it and not need it, then to not have it and need it.
Well this is usually the case when it comes to insurance, in particular, health insurance.
When you’re young, it’s easy to think of yourself as invincible to health risks, but that still isn’t a good excuse to forgo having coverage.
If budgeted correctly, having insurance can save you from the potential risk of financial hardship.
High Interest Rate Borrowing
One of the easiest ways to destroy your wealth is with the use of bad debt.
When I say bad debt, I'm talking about debt that is costing you thousands of dollars in interest fees.
This usually comes in the form of high interest credit cards that people usually carry with a balance each month.
This extra cost can make it extremely difficult to get out of debt because each purchase you make becomes even more expensive.
Therefore it’s important to learn how to avoid these high-interest debts to make sure your future is financially sound.
Co-signing a Loan
This is a mistake that is commonly made due to the fact that most people want to help those they care about.
Co-signing usually happens amongst friends and family because these are the people most likely to want to help as opposed to a stranger.
However, this can be very dangerous because as a co-signer, you also become liable for the loan if payments aren’t made.
There’s nothing more embarrassing than getting tricked into losing your money. This is something all of us encounter at some point in our lives.
This is especially the case if the need for money is high.
But when it comes to money, it is vitally important that you’re cautious about who you give your money to.
A good way to tell if you’re being hustled or scammed is in the ease in which this benefit to you can be obtained.
If it sounds like it’s too good to be true, then it probably is.
Beating Yourself Up For Making A Bad Decision
As you go through reading each advice I share with you, the best advice is to not beat yourself up over these mistakes.
It’s important to take ownership, learn from them, and develop plans to avoid them in the future.
Success is a learning process, and the mistakes you make along the way help in building a better future for yourself.