Millions of people around the world face financial problems due to poor money management skills, which are usually not taught in our schools. While we learn about calculus and algebra (which most of us will never use), the thing we use every day in our lives – personal finance – is not taught in schools unfortunately. As a result, financial mistakes are inevitable.
Most people never realize just how dangerous poor spending habits can become. More than half the population in the world cite that financial issues are the number one cause of their stress. Financial problems have led to countless people going through bankruptcy, divorces, suicides, etc.
While it might sound scary, it is not that difficult to fix your financial problems if you plan it wisely. In this blog, let’s discuss the 7 most common financial mistakes that people make and how you can avoid them.
Check out my article on the 8 Smart Personal Finance Tips.
1. Overspending and overconsuming
This is probably the biggest issue in the world we see today. While the previous generations had limited resources to spend and consume, we are spoilt for choices in the world we live in today. As a result, we overspend and overconsume. There’s an old saying – cut one’s coat according to one’s cloth. It basically means that you should live within your means.
We live in times where people look for instant gratification. They buy things on credit and before they know it, the bills start piling up and they start scrambling and panicking because they’re in debt.
2. Impulse purchases & flex culture
Millions of people purchase items just because of how they’re feeling at the moment. If they see advertisements for the latest and greatest car, they quickly put a down payment on it just to feel like they’re cool and hip. Also, we live in times of “flex culture” where people love to just show off brands on everything from their shirts to their cars.
It is no exaggeration to say that flex culture is killing us. There’s nothing wrong in buying quality stuff if you can afford it. However, buying them on credit based on impulse or just to show off is not a smart thing. If you keep up with these spending habits, it will eventually become your downfall.
3. Using credit cards for everything
More people go into debt because of credit cards than any other thing on the planet. The banks know this, and they love it. Banks will act like your best friend offering you perks and cards making you feel like you’re a baller.
People often get as many cards as they can and spend without worry. When the balance starts snowballing and the interest payments skyrocket, then they realize just how merciless the banks can be. Don’t let yourself get entangled in such a spot in the first place. It’s best to wise up early. Develop the habit of spending with cash for most of your purchases. Also, use a budget tracker to keep track of all your spending.
4. Falling for ‘get rich quick’ schemes
Anything that sounds too good to be true usually is. Thousands of people get conned every day to buy financial plans they don’t need or get tempted to invest in things they’re clueless about. In today’s world of cryptos and fake marketing channels, these scams are everywhere.
The salesperson’s pitch is emotional and enticing. They invest in some supposedly profitable plot of land hoping to reap returns, only to discover that their investment is worthless and now their money is either gone. When presented with a new opportunity, do your own research and get the full idea of what it is about. This can considerably minimize your chances of falling for a fake scheme.
5. Failing to plan for retirement
With the advancements in medical technology, life expectancy is increasing throughout the world. The average life expectancy in the US is 78 years, and it is increasing every decade. If we consider the retirement age to be 60 years, we are looking at another 20+ years of living on limited or no income. What plans do you have to be financially adequate old age?
You must plan to build a nest egg for the future (factoring inflation in your planning) so that you can retire comfortably. Having to work when you’re a senior can be highly depressing and tiring. More and more seniors are entering the workforce nowadays as they struggle to keep up with their bills. To avoid being one of them, planning early is crucial.
6. Not earning more
It’s easy to find one job and stick to it for the rest of your life. Millions of people do this and stagnate. Their salary over time doesn’t really increase that much, and they’re always living from paycheck to paycheck.
One of the best ways to improve your finances is to make yourself more valuable to the marketplace. Keep updating your skills and learn new courses every year. There are plenty of opportunities available online, and you can learn new skills just by watching a few videos in your free time. This will allow you to command a higher salary and have more money. If you increase your income and maintain your current expenses, you’ll have more money to save.
7. Not saving
This is another important habit overlooked by this generation. A common mistake people make is not saving any money. They try to save what’s left after spending, and often they find that there’s nothing left to save. Instead, you should save FIRST and then spend what’s left.
Always save at least 30% of what you earn. Over time, you’ll have a sum of money that you can rely on if any problems arise. Just the knowledge that you have some money on hand will give you more confidence.
These 7 mistakes mentioned above can lead one to financial ruin if they are not properly addressed. Now that you’re aware of these mistakes, check and see if any exist in your life and remedy them quickly. Remember, prevention is better than cure.
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