No matter how many great financial decisions you take in your lifetime, one tiny mistake may take you back years. Taking the right decisions and avoiding the pitfalls is important for creating a sound financial future.
People make mistakes which is natural. You can surely recover from the mistakes by rectifying it. You can also choose to avoid the obvious financial mistakes at different stages of life. Avoiding the obvious mistakes will help you accomplish your financial goals and create a more reliable future for you.
Let’s look at some of the mistakes that you need to avoid:
1. Not Starting Early
People in their 20’s think that it’s too early to save and they have decades ahead of them before they retire. Don’t forget that in order to enjoy a great retirement you will need more than 80% of your current annual income. Rome wasn’t built in one day and same goes for your retirement fund.
• The earlier you start the better. It doesn’t have to be your retirement savings. Just save every month in your saving account or emergency account, so that you will have some kind of financial backup.
• Your 20’s is the best time to start saving. By the time you reach your retirement, you will have a million at least by saving just 13% of your income.
• The longer you wait for saving for your future the heavier your financial burden will be. You will have to save more at a time which will result in financial stress.
2. Not Starting an emergency fund
This is one of the financial mistakes that many people make. Apart from your regular saving account, you must have an emergency fund which will help you get through the rough time. In case you lose your job or have to move to a new place your emergency fund will come in handy. This will also take care of any unplanned event like a medical emergency.
• You don’t need to spend too much on this. Just $500 emergency fund is quite enough to get you through some of the unexpected events in life.
• A credit card isn’t always the best fall back plan for financial emergencies. If you cannot pay back, the interest will increase and you will fall into more debts.
3. Buying a house or car that you cannot afford
Taking loans for buying a house or car that you cannot easily afford is one of the biggest financial mistakes you can make. You will be making more payments in the house and car which will leave you with little money for retirement.
• An expensive house means more property taxes, insurance premiums, maintenance cost and other things. If you cannot pay the mortgages due to job loss or drop in the income then, you will fall into more debts.
• The value of a car or any vehicle you buy will decrease every day, month and year but you will still be paying the loan. By the time pay off the loan, you may also need another car. Again the same things will repeat and you will be paying for a car that you cannot afford.
• When buying a car or house that you cannot afford, you can either not buy it or save enough to pay maximum down payments so that your mortgage amount is affordable.
4. Using Credit Cards Unwisely
One of the biggest mistakes people make is pile up on their credit card debts by using them for buying things that are not worth the debt. Buying grocery or small items on credit cards doesn’t make sense. Even the smallest credit balance can incur hundreds of dollars of interest. The money you pay on interest will eventually add up to a huge amount.
• Borrow money only for things that will add value like a house or education loans.
• Use credit cards for purchasing every little thing only when you have the capacity to pay in full and don’t have debts.
5. Don’t be late on paying debts
People can incur huge debts in their lifetime. Credit cards are one of the biggest reasons why so many Americans have so much of debt. When you have a debt to pay to make sure you do it right away. The longer you wait for the financial burden will only increase. Even small credit card debt should be paid off right away.
• A single late payment can have a huge impact on your credit score. You could lose around 110 points for just one late payment.
• Bad credit will deny you loans and mortgages. This is important because if you are thinking of buying a house or car or make an investment, it will be very tough for you to get loans.
These are some of the financial mistakes that people often make. By avoiding them you can save a lot of money as well as make your future financially secure. The more you save the better your future or retirement time will be.