Your financial health depends on the spending decisions you make. Unfortunately, a majority of the decisions people usually make are mistakes that only lead to financial instability and regret. Here are the top six most common financial mistakes you should avoid.
Living on Borrowed Money
Bad credits loans are common in the US. They are common because people find it normal to use credit cards to buy everything they want without establishing a robust repayment plan. Their credit rating begins to drop as they continue to default on the loans. In the end, they resort to bad credit loans to enable them offset their balances.
You can live without credit cards if you simply take some time and plan your finances. Track where your money goes and change those habits that are making you to use credit cards. Create a household budget and stick to it. Stop carrying your credit cards wherever you go and save in an emergency fund to eliminate the option of using a credit card for unexpected expenses.
Paying Your Debts with Savings
Some people use their long-term savings to pay off debts. They even go to an extent of withdrawing money from their emergency and retirement savings accounts to pay off debts. Withdrawing money from these accounts is easy, but it is very difficult to replace the amount you have removed. Do not touch your savings. Instead, look for alternative means of paying debts. Assess your situation thoroughly and come up with a strategy on how you want to pay the debts. Analyze your resources and determine how much you can cut from your spending to add to the monthly payments.
Failing to Build an Emergency Fund
Almost 34 percent of Americans do not have a savings account. Such individuals risk huge financial burdens following an emergency like a sudden illness, accident or home repair. Those who have an experience with unforeseen expenses can tell you how joyful they were for having an emergency savings account. You need to have a savings account that is worth at least three months of your salary. This amount should cover up to three months of your expenses in case you lose a job. You first have to calculate your living expenses in order to come up with a suitable amount to save every month.
Not Writing a Budget
Only 33 percent of adult Americans prepare and follow household budgets. This is quite unfortunate because budgeting is a stepping stone towards financial well-being. A proper budget monitors how you spend and ensures you don’t deviate from your financial plan. It helps you focus on things that are important like getting out of debt, saving for a car or starting your own business. A budget will also save you a lot of money and stop you from worrying about your finances.
To make a budget, you need to first assess your financial situation. Break down your expenses over the past few months and categorize them into needs and wants. Evaluate your spending on each category and find ways to reduce them, beginning with the wants.
Life is full of unexpected events. These events can happen to anyone, regardless of their financial might or age. You want to make sure you are financially armed for them by buying an insurance policy. You can go for a homeowner’s, liability or health insurance.
Failing to Invest
Having the thought of working your entire life and living from one paycheck to another is enough to compel you to invest. You need to let your assets make money for you. Do not keep your money in the back of your pocket without placing it somewhere to multiply. There are many ways to invest in the US. You can open a small business or invest in stocks, bonds and mutual funds. Make sure you consult with an adviser to know the potential risks and challenges of each investment option. Investing is quite essential in getting you to where you want to be in life.