Most Common Money Mistakes People Make

Most Common Money Mistakes People MakeThere are a lot of money mistakes people make in their lifetime. There are some that seems to be very specific with their current situation. However, there are times when the same mistake is made by a lot of people. This means that if they only had the chance to know about it beforehand, there was a big chance they could have prepared for it.

Life is not perfect and there is no way to predict what will happen in the future. If that was the case then there would be no need to plan ahead and save up for the future. You simply wait for things to unfold and wait for them to play out. However, life does not work that way and you need to be proactive in safeguard

On top of this, there are a lot of money mistakes people make that further complicates their financial planning. One of the best ways around this is to have an idea what these mistakes are. In doing so, you get the chance to prepare for them early on. Here are a few of those financial mistakes people often make. This list would ideally help you prepare and be ready for your own set of challenges.

Living extravagantly

One of the most common money mistakes people make is trying to live above their means. Huffington Post explains that there are people who are focused on appearance wanting to give the impression they are well off. There are a lot of reasons why people do this. For some, they simply want to be able to step toe to toe with some of their peers, relatives, or even neighbors. As they see other people succeed in life, they want to have the same level of success.

As such, they aim to have the same amount of material possessions as most successful people do. This leads to buying new gadgets, clothes, shoes, even new vehicles in an effort to be in the same lifestyle as other people. This would the lead to debt and because expenses would start to pile up.

One way to address this situation is to practice self-restraint. If you are constantly trying to benchmark your success with that of other people them something is wrong. You need to remind yourself what is important in your life. It should not be what other people think about yourself.

Wasting away too much on a vacation is a common money mistake

We all need to get away from time to time and be able to relax and unwind. There are vacation leaves at work that you can take advantage of. You can take the whole family out on a vacation or you can simply have one day to yourself. However you describe a vacation, you need to have a regular one.

That being said, it is not a license to overspend and paint the town red whenever you are out on a vacation. As you plan for it, you need to make sure that you have a budget for it. The last thing you need is to charge everything on your credit card and miss the payments after your vacation. This will only add financial stress and could make you forget all about your vacations.

As you plan for a vacation, you need to save up for it early on. Once you are there, it is important to keep within budget. You might be tempted to spend more than what you have planned for and end up with a hefty bill when you get home. Condition yourself with how much you can spend on your trip and stick to that budget.

Inability to follow a budget

Creating a budget is different from following the same and each requires a different approach. Take your food budget for example where you need to plan ahead to be able to save cost. This means that you need a list to have a guide when you start buying food. Before you are able to do this, you need to check what you have and don’t have as well as planning the meals ahead.

Once you have your list, it will be of no use when it remains in your pocket or in your smartphone. Making a list is hard but there are times where following that budget is even harder. This is one of the common money mistakes people make because they stop with making the list and does not follow through with execution. Once you have a budget, you need to make sure that you do everything you can to follow them. Putting it together is just half of the battle.

Piling on too much unsecured debt

Some people seem to think that their credit cards are a great way to manage their finances. CNBC shares that credit card debt is over $1 trillion already. Though it can work for some people, it becomes a trouble for some especially if they start to live above their means. The credit card starts to become the enemy because it gives them the ability to buy things they cannot afford.

Here is also a clip from CBS News regarding the credit card debt that shows how news agencies are somewhat ringing the alarms on the issue:

They then find their backs against the wall as their debt amount piles up from non-payment. Interests, penalties and other charges compound on a monthly basis that increases the amount they have to pay. This is one of the money mistakes people make because as they fail to meet their payments, it keeps on growing and growing over time.

Overlooking retirement savings

This is a tough one especially for the younger generation because retirement is too far off. A lot of the younger generation that is starting to enter the workforce are more concerned about paying off their student loans, being able to afford a place to stay in and even catching up on their credit card payments.

However, it is important to remember that the sooner you get started in retirement planning, the bigger the amount you will get in the future. Fox Business shares that people retire usually between the ages of 62 and 65 years old. This is because compound interest is able to work behind the scenes adding on interest earnings on top of interest earnings. This is similar to what happens when you are unable to pay your credit cards. The only difference is, you are on the other end of the line and benefiting from it rather than having to pay up for it.

Not planning for emergencies is one of the money mistakes

One of the most costly money mistakes people make is not planning for emergencies. This has a lot to do with putting up a reserve fund to help tackle unforeseen financial challenges that can come up in the future. This is easier down in installments rather than trying to come up with the money in just a few months.

The way to do this is to look at your budget and determine how much your expenses are on a monthly basis. You then target a number of months worth of emergency fund to get you through some hiccups. It is a good idea to start with a small amount of maybe one to two months-worth of expenses. Then work your way up to six and even twelve months worth of emergency fund.

This way, you can still meet your expenses even if you encounter an emergency where it impacts your earning ability. This can be as simple as getting sick to even losing your job. As you send out applications looking for a new one, you are able to stay away from accruing more debt and able to pay off bills with your reserve fund.

These are just some of the money mistakes people make. As you know more about them, they should be able to help you better prepare for your own set of financial mistakes.