When you're first starting out, it’s natural that you make some less-than-ideal financial decisions. It’s ok we’ve all been there! However, it's crucial to remember, that the decisions you make today and the habits you develop now will have a lasting impact on the remainder of your financial life. Here are some of the top ten financial mistakes, as well as some helpful ways to avoid them.
Getting behind on your payments
When you get behind on your payments, you may find yourself trapped in a vicious cycle. Each time you default on your payments, you get charged with late fees and other costs which in turn could have long-term consequences on your credit score. The first step is to tackle this head-on is to catch up on any missed payments, followed by addressing any spending, budgeting, or income difficulties that may have caused you to fall behind in the first place. Then, to avoid this happening again, attempt to stick within your updated budget and financial plan.
Using Credit Cards for your daily expenses
When you use your credit cards to make up for shortages in your expenditures, you can quickly accumulate a large amount of debt. Furthermore, research has shown that when paying with credit, people often land up spending more money. When you use your credit card often, it's also easier to lose track of your budget. Break this habit, by relying on debit or prepaid cards instead and sticking to a budget.
You may be tempted to borrow money from friends or family when you are in a crunch. While this may seem ok at first if you develop a habit of frequently borrowing money and flaking on repayments, you can risk straining your relationship with them. Instead of relying on others for such situations, think of creating an emergency or rainy day fund. If it seems too daunting to put away a large sum of money right away, slowly accumulate any extra cash in-flows or savings you may have.
Staying at a job with no self-growth
Another costly financial blunder is to continue working at a dead-end job. This can be financially damaging because it limits your opportunities for growth and raises your earnings. While you may take a job as a stepping stone or because you are in severe need of work, you must have a plan in place to advance to a higher position. You'll need to figure out whether it's the ideal time to look for a new job, as well as the skills you'll need to land one that's more in line with your interests. Start the process as soon as you're ready to quit your job. That way, when the time comes, you'll be ready.
Quitting your job without a Backup plan
Unemployment can be a serious situation to land up in if you do not have a game plan. Start looking for new opportunities or build an actionable roadmap as soon as you realise your current scenario isn't working for you. Factor in all the pros and cons, expenses and other variables of your financial situation before making the change.
You don't have control over your finances if you don't have a budget. You might make a lot of money yet struggle to make ends meet if you don't have one. It might even become tough to achieve your financial goals. Take your time to create a sustainable and comprehensive budget that you know you’d be able to stick to.
Not having an Insurance plan
Many people consider insurance as a huge financial hassle. But the truth of the matter is your auto or health insurance provides a much-needed safety net. It safeguards you in the event of a big accident or the onset of a serious health problem. Instead of choosing just about any plan, pick insurance plans that fit your budget and requirements, and you’ll soon find it to be a boon, not a burden.
Avoiding investing till you 'have enough money'
There is a severe misconception that investing money is the ballgame of the ultra-rich. This is not true. Anyone can invest with however much money they have, as long as they have a good financial discipline and understand the right investment vehicles for them. Investing small amounts of money consistently over time is much better than putting big lump sums over a shorter time frame.
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Not setting Goals
Your financial goals provide you with steps to work towards a concrete financial plan. Homeownership, starting your own business, and retirement should all be on your list.
So take the time to create a strong financial plan that you can revisit each year.
Postponing your savings for your retirement
You may put off creating a retirement corpus while you are young thinking that you don’t have a sufficient enough income. But building the financial habit of contributing to a retirement plan is, nonetheless, critical. You should ideally dedicate a portion of your income corresponding to your age, towards your retirement. To calculate just how much that amount is you can read here.
This will allow you to live comfortably in your golden years and be financially self-sufficient even after you stop working.