Financial literacy is so important that if you are not financially educated then you will struggle with money. You cannot blame the economy or any social or cultural factors for your financial struggles. Making smart money decisions and avoiding certain financial mistakes can help you to grow economically strong. Here in this article we present you with financial mistakes that you should avoid.
- Avoid wasteful spending
- Do not go for endless monthly spendings
- Avoid living on credit cards
- Don’t buy vehicle on credit
- Don’t spend too much on home
- Avoid misuse of funds
- Zero Savings
- Ignoring retirement saving
- Debt repayment with retirement savings
- Living without any financial plan
1. Avoid wasteful spending
It is very difficult to determine what is wasteful spending and what is useful spending. The best criteria to determine is the nature of expense and the satisfaction that you drive from spending that money. Having dinner at your favorite restaurant may give you more satisfaction but it may be a wasteful expenditure instead you can plan to have cooking at your home. Going and having food at a restaurant once in a while is sensible but if you prefer daily it is a wasteful expense.
2. Do not go for endless monthly spendings
Analyze yourself and find out if you really need the expense monthly. Expenses such as payments for Gym memberships, subscriptions of channels if paid for a longer period of time will have benefits. Payments which are made lumpsum will give you discounts, offers and long term benefits in this way you can avoid going for endless monthly spendings. Also look out for alternative options where you can go for low budget spendings. If you have tight monthly budget than create a leaner lifestyle where you can spend a minimum amount of money and avoid financial hardship.
3. Avoid Living on credit cards
Credit cards are a very good option where you spend money and make the payments after 30 days. It is a bad idea to use credit cards for the sake of living, meaning spending the money for your daily requirements and paying them back. The nature of expense determines the long term benefit. Suppose if you have purchased any asset through a credit card then the asset remains with you for a long period of time and you enjoy the benefits in the long run. When you spend a huge amount of money on daily essentials, groceries, hotels, dining, domestic expenses then your income will run only to make the credit card payments and you will be left with no savings.
Click here for How to negotiate with your credit card debt?
4. Don’t buy vehicle on credit
Vehicle is a depreciating asset and when you purchase a vehicle on credit you are additionally paying an extra amount for interest on the depreciating asset. No cost EMIs are a good option where you still end up paying on processing fees and taxes. When you do not have any option left with you and you have to rely on a loan then make an analysis of your financial situation and select the vehicle that fits your budget. Do not make big ticket purchases where you will spend all your salary towards EMI payments. Purchasing used cars is also a good option where you do not go out spending a lot of money. Renting or hiring a car are also some other options which you can prefer.
5. Don’t spend too much on home
When you are spending money on home, look for whether you are paying for luxury or necessity. Some big expenses for home may not always be useful. Suppose you are buying an expensive home theater and you are spending more. It also can be managed with a big screen TV which is less expensive. This big amount of expense will directly affect your monthly budget so do not spend huge amounts on home, look out for alternative arrangements.
6. Avoid misuse of funds
It is a general tendency that the day when salary is credited, you will become king of the month. It is very important to avoid misuse of funds. First, prioritize your payment towards outside liabilities, allocate funds towards the remaining 30 days, look out for savings options from the salary, use credit cards wisely so that it doesn’t become a burden next month. By effectively managing your salary you will not fall into unnecessary payments.
7. Zero Savings
Money matters even if it is a small savings it makes a huge difference when you have nothing. Make savings your priority when you have earning capacity only then you have savings ability but if you mismanage then you will be left with zero savings.
According to experts you should have three months of expenses in your emergency fund account. Future is uncertain so prioritize having a savings account with your savings amount.
Click here for 30 Days Savings Rule – Working and Benefits
8. Ignoring retirement savings
Earning at a young age will not be the same forever. Remember that you will become old one day and you will not have the capacity to earn money in old age. Plan for your retirement and have a savings amount invested towards retirement. Early age investment will have the benefits of compounding and you will get a huge return on your investment for retirement age.
9. Debt repayment with retirement savings
Stop payments with your retirement money. Your young children may ask for a share towards their debt repayment or you may have debt and do not make debt payments from your retirement savings. When you close your retirement savings account you will lose the compounding power and will not get the desired retirement benefits.
10. Living without any financial plan
When you live life without any financial plan then you will not know where your money is going towards. Prepare a plan where you want to spend, how much you want to spend, how much you want to save. Every month follow the process and repeat. If you are living without a financial plan then you will fall into a debt trap.
Take away
Financial challenges can come up at any time during your life. Being prepared is the safest way to deal with the uncertain future. During your financial hardships only your own money can save you and this can happen when you avoid financial mistakes in your life. Financial planning comes with financial education and understanding the economics of money management will help you become financially strong.
About the author
Vinay Kumar Goguru is a finance professional with more than 8 years of diverse experience as a researcher, instructor and Industry work experience with both public and private entities. Prior to MyMoneySouq, he spent 6 years in Berkadia, It's a commercial mortgage banking company. He has a "Doctoral Degree in Commerce" and two master's degrees with a specialization in Finance, one as Master of Commerce and other as Master of Business Administration. He has written several articles on personal finance, published by different International journals. He loves traveling, reading and writing is his passion. He has a dream of writing a book on his favorite finance topics.
