Everybody makes mistakes and it’s quite normal as “to err is human”. Among these mistakes, money mistake is the most haunting one as money is supposed to secure your future.
Mistakes generally happen without knowingly but sometimes it comes from negligence. It can be said that money mistake or personal finance mistake is derived from negligence or unawareness of certain things.
Let’s find out some dangerous personal finance mistakes and also suitable solutions to avoid such mistakes in the future:
Not reviewing your budget
It’s been a year you have updated your budget and right now you have no idea what changes should have been there. A year means a long period that is enough to bring changes in your income and expenses as well. At that time, maybe your budgeting was effective enough to balance your income and expense but it doesn’t necessarily mean to work out after 1 year too.
That’s why it’s quite essential to review your budget at least once in three months. The reasons for updating your budget include:
- Getting married
- Having a kid
- Being laid off from a job, and the list goes on.
So, track your income and expenses regularly to avoid financial hassle in the future and live a balanced financial life.
2. Having an unorganized saving
Saving money is undoubtedly a good habit and it really saves the life. But the point is, have you set a goal while saving money? If it’s no, then you should really set a goal. To get real success in your financial life, you should consider having a savings account for each category.
Having a single account for all spendings can make a mess and difficulty for you to manage your finances. So, let’s have a plan, keep your emergency fund in one account, vacation fund in another, and another account for your home renovation or car maintenance/purchase. You can add as many accounts as you want to.
For better guidance, you can go through the blog “How to save money every month.”
3. Living beyond your means
In this fast-paced modern world, people are continuously striving for an upgraded lifestyle. You are not exceptional and you can’t be as you don’t want to lag behind. And that’s why you are doing everything to stay on track.
Your earnings may allow you to spend limitless but what about the future?! That’s good to live in the present but it’s equally bad to ignore the future. Keep in mind that worst things may happen when you least expect it.
Isn’t it a wise thought to get always prepared and live the life within your means? I know it is not always possible to get prepared for any situation but sometimes a good and unique attempt can save us to a great extent. That good and unique attempt is living within your means, not following some unrealistic dreams.
You can follow the blog “How to live your best life in 2019” to know the actual meaning of living a life.
4. Having no retirement planning
You may find it quite difficult to focus on retirement when it is too far. But your 20s and 30s are an ideal time to start growing your savings. You should take full advantage of a 401(k) plan because it is always good to “start early and end late.”
The earlier you start to save money, the more time you’ll get to take advantage of that wonderful savings. Moreover, having a retirement fund will give you strength with a positive feeling.
You’ll find a lot of benefits of retirement planning both financially and psychologically:
- One of the most important benefits of retirement planning is acquiring “peace of mind.” It will eliminate your stress whereas the lack of planning can leave you in a phase of uncertainty.
- There are some tax benefits of retirement planning like lowering the amount of income taxes you’ll pay during retirement.
- Another benefit is that you’ll be able to figure out how all your financial goals relate to one another rather than assessing them separately.
- Rushing to pay off mortgage debt
Mortgage debt is a burden, obviously. But if you focus on repaying mortgage debt by avoiding other debts, you’ll make a great mistake that can ruin your financial life. So, give equal importance to paying off other debts as well. Handling each debt tactfully will help you live a burden free and stress-free life in the future.
If you opt for mortgage prepayment, check out the prepayment penalties in your agreement:
Soft prepayment penalty
It will allow you to sell your home at any time without any penalty. But if you choose to refinance your mortgage, you may have to pay the prepayment penalty.
Hard payment penalty
In such a case, you’ll have to pay a penalty whether you sell your home or refinance your mortgage. This is obviously the harder one where you have no way of escaping once you obtain a mortgage loan.
However, the duration of most prepayments is 1-3 years. Therefore, check out these aspects before you decide to pay off your mortgage loan early.
6. Not paying credit card bills within the billing cycle
It’s a common mistake made by almost everybody. This mistake basically happens due to negligence. If you don’t pay credit card bills within the billing cycle or you pay an insignificant amount, you have a higher chance to fall into credit card debt. If you are already in debt, you can consider one of these best debt consolidation options like:
Debt consolidation program
It will help you consolidate all your bills into a single monthly payment where the interest will be comparatively lower.
Balance transfer credit cards
This debt consolidation process will help you repay your debts with a new credit card that holds a lower interest rate.
Problems come from mistakes and mistakes from ignorance and negligence. If you overlook serious financial matters, you’ll have a high chance to fall into grave problems. So, be a little serious when it is about dealing with your financial life. Remember, solid finance is the base of a healthy life.
Be aware now to be happy later!