Common Financial Mistakes To Avoid
August 27, 2021
Budgeting finances is far from easy and sometimes mistakes are inevitable. There are certain errors that can be especially costly to your personal finances if you are not careful. Unless there are no other options, you should always avoid borrowing money unless you are getting a very low rate and you are investing the funds towards something that will improve your financial situation long term. If you do feel you must take out a loan, consider exploring more affordable options, like lower interest personal loans versus quicker high-interest options. Below we will look at a few big money mistakes you definitely want to avoid.
Living Above Your Means
If you are spending more than you bring in each month, you’ll never be able to get ahead financially. It will be nearly impossible for you to save money for emergencies or for your retirement. To the contrary, you’ll end up having to borrow money just to fund your comfort level and will ultimately end up further and further behind financially. To avoid this, it’s wise to make sure you keep overall spending well below what you earn. In an ideal situation, it’s best to keep expenses to no more than 80% of your monthly income and put the rest away in savings.
Not Having A Budget
If you don’t have a budget created that you can stick to the chances are high that you will not spend your money as wise as possible. In fact, you may allocate too much towards the frivolous since you’re not tracking how much you’re actually spending on extras. This can lead to shortchanging other areas when it comes to accomplishing the goals you want to achieve financially. Creating and following a budget doesn’t have to be difficult. There are a lot of different budgeting tools and resources out there and it’s important to find one that works best for you. The most important thing ultimately is to pick an option that works for your needs and then stick to it. This way you will be spending your money in a way that’s aligned with your overall goals and values.
Taking High Interest Debt
Borrowing money sometimes makes sense financially. For example, taking out a low interest loan to start a business that helps you increase your overall income would be a wise decision. High-interest debt such as payday loans, however, can be really difficult to pay back and should be avoided at all cost. If you’re taking out this type of loan or carrying a balance on a credit card with a high rate, you are throwing away a lot of your future income to interest. This can make living within your budget almost impossible. It’s best to avoid taking out debt unless you are getting a very low rate and you are borrowing for something that will improve your financial situation in the long-haul. If you do need to borrow, consider pursuing more affordable options, such as personal loans over high-interest options.
Buying A House You Can’t Afford
In most situations, securing a home mortgage means taking on debt that will take decades to pay back. If you stretch your budget too thin just to buy a house that’s at the top of your price range, the large monthly payments you are agreeing to could affect your ability to do anything else with your money during the decades when you’re paying back your loan. You could be setting yourself up financially to be at higher risk of foreclosure and/or stressed out all the time just to make end meet each month. A higher-priced home also comes with higher home expenses, including costlier utilities and property taxes, which can seriously impact your financial situation.
The good news is that most of these financial mistakes are avoidable and can be fixed over time if you’ve already made them. For example, refinancing and combining all of your debt into one payment could help you to deal with high interest loans. Another option might be to downsize to a smaller home if your monthly mortgage payment is too much of a burden. The most important thing financially is to realize that doing any of the above common money mistakes could cost you your financial security in the long term and you should do whatever is necessary to avoid them down the road for your financial well being.