Despite the importance of money in everyone’s lives, we often aren’t formally taught much about personal financial management. Not knowing what mistakes to avoid can unfortunately mean it’s a lot easier to make them, but there are plenty of resources out there that can help you learn more about finances and what errors you should watch out for.
Nickel and Diming Yourself
You might know better than to spend extravagantly on vacations, clothes, and cars, but you could be letting just as much money slip through your fingers on hundreds of little purchases here and there. For the most part, millionaires are famously frugal, and you should be too. Little expenses add up over time. This doesn’t mean that you should never do anything fun or treat yourself. But when you do spend money, it should be on something you genuinely want and enjoy instead of just mindlessly dropping more cash on takeout or expensive coffees.
Not Having a Budget
Overspending on small things is the problem of not having a budget or creating a budget that is not realistic. Tracking your spending can help you with the latter issue. Give yourself a certain amount for discretionary spending each week or month, and this will allow you to spend money responsibly without having to question every cent. Your budget should also allow for paying off debt and putting money into savings.
Not Paying Off Credit Card Balances
You may have heard that it’s bad to use credit cards. This is not necessarily true. You can use them and pay them off each month, which can give you rewards like flights miles or even cash back. The real mistake with credit cards is failing to pay off the balance each month. If you need to purchase something and you don’t have the money for it, you should look for other sources of cash. For example, if you own your house, you might be eligible for a home equity line of credit. You can review a guide that explains this process.
Not Having an Emergency Fund
Being able to tap into your home’s equity is helpful if you want to do something major like renovate your place. However, you don’t want to end up in a situation in which you accumulate debt every time you have cash flow problems. In fact, this is how people often end up owing money on their credit cards. Life is full of unexpected expenses, such as car repairs and vet visits. Having an emergency fund can help ensure that you have a cushion.
Not Saving Toward Retirement
When you are young, it can be hard to think about putting your hard-earned money into retirement when there are so many other things you could spend it on. But money that you put away in your 20s and 30s can increase in value many times over. And ample finances are an essential piece of having a happy and healthy retirement plan. It will be worth far more to you in a few decades than anything that you spend it on now. On top of that, if you aren’t saving, you might be missing out on employer contributions as well.