The rich keep getting richer, and the poor become poorer. You look around you, and every day, you become more and more convinced that the system-life is rigged against you. If only they’d have swapped that Mole concept class in school for financial education, you know, skills applicable in everyday life!
You are not alone. 10.5% of the population are broke, based on 2019 census data. But that is not a consolation-you deserve financial wellness. You deserve to achieve your dreams. But how?
By changing your money habits. Even if you had millions and didn’t know what to do with it, you’d soon find yourself in the red-there is even a Bible verse for it. On the other hand, multimillionaires like Martha Stewart, Bill Bartman, and George Foreman lost it all but then bounced back. So, you’re never too poor to become rich. To accelerate your path to financial wellness, behavior change is what you need. Here are the popular money mistakes you must avoid.
1. Winging It with Money Matters
Actively managing your money is a bit like going to the gym: you know you should go, but you probably have a perfect excuse to put it off until tomorrow.
But unlike a gym membership, you can’t break your personal finances. And more importantly, you can’t ignore them unless you want to take the risk of finding yourself in a complicated situation.
By turning a blind eye to your finances now, you will inevitably pay the price later. And the sooner you do it, the better off your situation will be.
2. Living Lavish When You Don’t Have the Means
Many people decide to buy a new car, for instance, when they really cannot afford it, for example, by taking financing plans or car loans. The problem is not really in the purchase itself. Above all, few people realize that by paying for a car beyond their means, they automatically limit their choice and their ability to finance other desires and goals.
On the other hand, choosing a new car instead of a used car is often an unreasonable personal choice. More on this later.
3. Getting into Too Much Debt
When you’re in a challenging financial situation, it’s easy to be tempted to borrow money from friends or family – of course, promising to pay them back!
But by putting money between you and your loved ones, you put unfair pressure on your relationships. If you borrow $ 100 from someone and arrive a few days later with brand new shoes, then plan for a few comments, legitimate or not.
Your loved ones might also need to get the money back faster than expected in an emergency on their end as well. Or you may feel guilty every time you see them. There are many possible bad scenarios. Either way, try never to ask your family or friends for money except in an extreme situation.
4. Not Saving Enough
If you haven’t set clear goals for saving money and preparing for your financial future, it’s difficult – if not impossible – to move forward. How to achieve your goals when you don’t even know them? And getting started is a lot easier than it looks. At a minimum, figure out where you want to be in a year, and ask yourself how your money can help you achieve that goal.
Then you should at least have a budget in place that matches that financial plan. Aligning your budget with your goals is essential in ensuring that your spending is in sync with your priorities. Your financial plan will help you decide when to start investing your money, how much you’ll save for retirement, and meet your other financial goals.
5. Not Investing Enough
If you want to take control of your money, you need to know where it’s going and plan for how you’re going to spend it. In summary, you need to build your monthly budget.
Today, there are many applications or software to do your accounts and simple methods to make your job easier. This is particularly the case with the 50/20/30 rule, which is flexible enough to adapt to all financial situations. This rule widely used in the field of personal finance offers you to distribute your expenses as follows:
50% of your salary should be for essential expenses, which include accommodation, transport, and food.
20% of your salary should go to financial priorities, including savings, investment, long-term purchases, and retirement.
30% for pleasure/leisure purchases, which gifts, travel, restaurants, shops, and everything are in between!
6. Not Having an Emergency Fund
The importance of having an emergency fund can never be underestimated, but in reality, a majority of people do not have a safety cushion (or with insufficient sums).
Yet without emergency funds, you become vulnerable to your surroundings and any unforeseen circumstances that might arise.
Start building your emergency fund:
For a start, place at least the equivalent of 3 months of expenses into our emergency account. Define a percentage of your salary that you will pay into your emergency fund each month
7. Buying Things on Impulse
Not having a clear monthly budget is one of the best ways to overspend and get caught up in impulse buying. When you don’t follow your expenses carefully, you tend not to realize how much money you waste each month on purchases that do not contribute anything to your happiness.
That doesn’t mean you shouldn’t be happy shopping, quite the contrary! But it would be best if you defined each month in advance where and what you are going to spend your money on to avoid regrets that will prevent you from paying yourself for what matters to you.
9. Not Looking at Prices When Shopping
There is no reason why you shouldn’t seek a better price when you need to buy something, especially when it comes to inexpensive items. Thanks to the internet, you have access to thousands of information and solutions to compare prices in minutes or even seconds.
By shopping around before you spend, you’ll find that you could literally save hundreds or thousands of dollars a year without depriving yourself of buying the items you want.
10. Buying Everything Brand New
There are so many ways to buy the items you need without paying the maximum price for a new item. Buying second-hand is too often seen as “cheap” or even downright dirty, but these are often psychological prejudices that are fairly easy to overcome.
Buying second-hand items like furniture, cars, appliances, or even clothing can help you save a lot of money in the long run. It’s good for the planet too. And the question isn’t just whether you can afford to buy it new (the answer will often be yes), but rather whether you really need to buy it new.
11. Buying Cheap Things That Don’t Last Long
We have all fallen into the trap of wanting to “save money” by buying inexpensive, low-quality products. For example, the popularity of extra low-cost ready-to-wear brands like Primark is a reflection of this.
While it is good to watch out for prices, sales and discounts, it is also essential to buy something that gives you the best value for money. For everyday items that will serve you for many years to come, invest in valuable things that won’t break after a month.
12. Not Diversifying Your Income Streams
Would you like to start your own business, become financially independent, and invest in real estate? What holds many people back is having only one source of income. Depending only on your salary is not only risky but also a brake on building wealth.
Having another source of income will not only give you a safety net in the event of a problem, but it will also help you to break free from your finances and take your first steps towards financial independence.
13. Over depending on Credit
A common mistake to avoid is living on credit for most of your living expenses or small luxuries, like travel or new furniture. If you always need credit for these things, it may be a sign that your financial skills are not optimal.
Also, watch out for high-interest credit offers. More and more loans, often offered by car dealers, allow you to settle the bill in more than 60 months. This is not necessarily bad. However, the interest rate is often not very favorable. You will indeed have smaller payments, but in the end, the amount of interest you pay is disproportionate considering the amount of your purchase.
14. Not Discussing Money with Your Partner
These aren’t pleasant or easy conversations to have, but discussing your finances, spending habits, and financial goals with your partner is essential. And the sooner these conversations happen, the better.
You should never assume that your partner is on the same page as you. If you are living together or are planning to do so, specify who will be responsible for paying which bills and how you plan to organize yourself. Will everyone participates 50/50? Or in proportion to the amount of his income?
15. Leaving Idle Sums in Your Account
With rising inflation and lower bank rates, you must ask yourself whether it makes sense to keep your money in your checking account or even in other traditional bank passbooks.
In the past, bank accounts were indeed an attractive option for storing savings. But times have changed, and so have economic dynamics. And the reality of your financial goals should be taken into account when planning your finances and investments. In addition to checking accounts that often earn no interest, bank savings accounts cannot beat inflation. This is why it is tough, if not impossible, to get rich just by saving. Invest, please.
How do I save money?
The first and most effective way to save money is to know your financial situation. And for that, it is necessary to make a budget. It is much less complicated than it seems; draw a table with two columns:
In the RIGHT column, you enter all your money earnings per month: salary, allowances, etc. In the LEFT, all your fixed costs: food, insurance, mortgage, electricity, car payments, and telecommunications, etc.
Then you subtract RIGHT- LEFT, and you magically get the amount of money you can save on. You can also use software or an app to track your cash flow and set goals.
How much should you save in your 20s?
One of the biggest pitfalls for young adults is not saving money quickly enough when they are young. Almost all financial experts recommend that young people save 10% of their income. You may be able to comfortably increase the amount you save each month if you save 10% and find you still have money left over at the end of the month. Saving for retirement is also important.
How much should I save each month?
Most monthly budgets can be split into three categories: 50% for essential expenses like rent and food, 30% discretionary expenses, and 20% for savings.
How can I save money from my salary?
Every month before you receive a paycheck, you should have an income spending plan in place. Setting up automatic withdrawals and transfers from your checking account to your savings or investment accounts is possible these days.
Also, track your spending to reduce costs in housing, food, and transportation. What current expenses and service providers are you currently paying; how does having a subscription of 300+ TV channels add value to your life?
Where should I invest money to get good returns?
Most investors put their money into the stock market, which is arguably the most beneficial place to do so. Once you buy a stock, you immediately own a tiny fraction of the company you bought shares of. Based on how many stocks you own, it will pay you a significant percentage of the profits if the company profits in the future.
During a period of growth in the company, the price of the shares you own will rise, which lets you sell them later at a profit.
In summary, the system is not rigged against you. You can change the course of your financial life by:
- Following a budget
- Living within your means
- Avoiding unnecessary debt
- Avoiding impulse purchases
- Saving more and investing more
- Shopping for discounts
- Buying second hand
- Creating more income sources
- Having an emergency fund
Do the math, and you will find that it is possible to improve your financial situation. Dedication and self-discipline are all you need.