These are hard times, which is why saving up for a rainy day as well as creating a backup financial plan is essential. After all, you don’t know what the economic and unstable political climate has in store in the long run.
While treating yourself and spending money on what makes you feel good certainly isn’t evil, there’s no denying that more and more individuals are starting to live in the moment rather than living conscientiously. These spending habits can wreak havoc on your finances and can set you up for failure.
If you wish to make smarter financial decisions and make informed choices, below are five money management mistakes you should definitely avoid. With this guide, you can hopefully steer clear of these financial no-nos. Take a look.
5 Money Management Mistakes to Take Note Of
Spending More Than You Can Afford
It’s easy to get carried away when you want to treat yourself, especially when you compare yourself against your peers or colleagues who are living with a different set of standards. However, constantly going beyond your means isn’t sustainable as this puts a dent on your financial plans.
While getting that morning cup of joe may not seem much, adding up these small items can result in expenses you can’t afford. If you cut out everyday dining or even your morning Starbucks habit, chances are you’ll save hundreds or thousands a year, allowing you to pay off your car or mortgage.
Living Paycheck to Paycheck
With unemployment rates at an all-time high as a result of the pandemic, living paycheck to paycheck may not necessarily be the best idea, especially when you can come face to face with a problem at any given time. In the end, this could drastically drain your finances.
While it may not be ideal to take some money off your paycheck, having an emergency fund allows you to cope with major life changes or events, such as medical expenses, emergencies, car repairs, and the like.
According to financial experts, having at least three to six months’ worth of emergency funds tucked away should suffice to keep you surviving when you’re in between jobs or other similar unfortunate circumstances.
Failing to Keep a Record of Your Finances
It’s easy enough to pay for monthly bills and expenses as these are a constant necessity in your life. However, other people may struggle to check and record their finances outside of these major bills. Failing to keep a record of your finances means you don’t know where your money is going.
By keeping a record of your spending, you’re becoming more self-aware and mindful of your spending habits. At the same time, it also allows you to spend less and analyze where you can further cut on expenses.
Paying Bills Late
Falling behind on bills payments, such as your mortgage, car loans, or even electricity bills can create a place that’s difficult to break out off. Apart from paying unnecessary delayed fees and incurring extra charges, late payments also damage your creditworthiness, thus affecting your credit score.
By paying bills on time, you can help improve your credit score and help avoid unwanted fees. If you are in this position, make sure to start paying off your bills first and then assess what led you to this position. Some factors that are worth looking into are your spending, budgeting, or income.
Incurring Debts Out of Social Pressure
Everybody wants to live a comfortable and carefree life. It’s easy to get pressured into spending more than you earn and going into debt, particularly to keep up with other people, such as travels, tours, cars, bags, and other similar items.
When you feel pressured by what society tells you or imposes on you, you’re more likely to purchase big-ticket items without thinking about it. Don’t fall into these traps or pressure as doing so only put you further in debt.
The Bottom Line
Money management is an essential part of life that many people have to contend with. By avoiding these five money management mistakes, we hope that you can avoid the pitfalls that come along with them and enjoy a more stable financial future.