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Most Common Financial Mistakes That Too Many People Make
Our financial situation is a combination of the financial decisions we make. However, like most people, we all have had little or no coaching on how to handle our finances. We are not taught how to handle finances in school or college, and if we are a little lucky, our parents might impart some knowledge but even they are usually limited. So, we are all learning as we go.
This means that even though most of us want to make the right financial decisions, our lack of knowledge might make us fall flat on our face. What is important then is to be aware of common money mistakes that could put our financial future in jeopardy, and how to avoid them.
But first, we would recommend that you take a stalk of your financial standing and check your free credit report online. A credit report is like a report card of your borrowing history. It includes detailed information about your credit cards and loans so far, and a score provided by the credit agency. And if you have never taken a loan or a credit card, your credit report will also reflect that.
Now, here are some common financial mistakes to watch out for:
- Not Making a Monthly Budget: One of the worst financial mistakes that people make is failing to make and follow a monthly budget. Without a realistic budget, you are likely to not have an estimate of how much you can afford to spend on what, be it housing rent, leisure, everyday expenses, or others.
Additionally, without a budget, it is extremely difficult to save. Moreover, expenses always add up, and we typically end up exceeding the amount that we plan to spend. Hence, if you don’t make and try to follow a budget, the chances are that you might accumulate debt over time, and that could result in money troubles in the future.
- Paying the Minimum Due on Credit Card Bills: Credit cards are certainly a good solution for the month-end expenses, and when you are a little short on cash. They also help you maximize your savings through various reward programs and additional perks. However, it is incredibly important that you manage your credit cards well, and pay your credit card bills in full as often as you can. When you pay only the minimum due on credit card bills, then it is likely that your bills will accumulate and turn into large amount of debt.
So, when you apply for a credit card, you must be sure that you are indeed ready for it. Ensure that you can control your impulse purchases, and still maintain your budget. If you are someone who is likely to go on a shopping spree, it is recommended that you do not go for a credit card; you might land yourself in financial trouble.
- Not Diversifying Your Savings: We all plan to save, and often we collected small amounts in our bank account, letting them rest there. However, one of the biggest financial mistakes to avoid is collecting all your savings in one place and letting them sit.
What you need to do is put your savings in various categories, such as savings for short term goals like vacations or new purchases, savings for longer goals like buying a car, and savings for life goals like buying a house. Once you have made these categories for your savings, you also need to find appropriate places for these, such as opening Fixed Deposits or Recurring Deposits, or starting a new bank account, or putting a certain amount of money in Systematic Investment Plans.
If you keep all your savings in one place, you are likely going to lose track of what amount was for what, and you might end up not making the most of the money that you have.
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Not Planning For Upcoming Expenses: We all have an idea of our upcoming expenses, be it festival spending, or birthdays, or bigger things like buying a new gadget or vehicle. However, if we do not plan for our upcoming expenses, it is likely that we might end up in a financial mess.
You can plan for upcoming expenses by saving up for them. You can also apply for a Personal Loan for the bigger expenses such as vacations or weddings. You can also use your credit card to turn your bigger everyday expenses into EMIs.
Thus, by planning for your upcoming expenses, you can do all that you want without any financial stress.
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Not Making An Emergency Fund: Emergencies happen uninvited and unannounced. It could be something like a leaky roof or burst pipe causing a havoc around your house, or your vehicle might break down and need repairs, or you might fall ill and need a month off.
Whatever the case be, it is likely that sometime in the near future you might need a stash of money to help you out. It is precisely this time that you will need the emergency fund for. Thus, one of the biggest financial mistakes to avoid is not making an emergency fund.
Thus, by avoiding these financial mistakes, you can keep yourself safe from landing in a mess. Just remember that all financial decisions are important, no matter how small or big. And all financial decisions are likely to impact your future.
