Money is a fickle thing; spending it is enjoyable, almost addictive. Managing money is another story altogether. It takes incredible discipline and determination to curb spending, maximize savings, and make the right investments. Here are the five worst money mistakes that anyone can make, and why you should do everything you can to avoid them.
- No Guidance
If you’re not great with money, not seeking out help when you’re struggling to get your finances under control can be disastrous. Whether it’s pride or cost getting in the way, with no help, you’ll find it ten times more difficult to navigate financial distress or make well-informed investment decisions.
Financial advisors and planners exist for a reason; to help people manage their investments and secure their personal finances. Whether you’re a stockbroker in New York or a farmer in the midwest, getting financial help is not an indication of failure; merely an admittance that you don’t know everything. It’s ok not to know everything! How could you?
If you’re considering enlisting the help of an advisor, you can compare financial advisors on Carefulcents.com for a better idea of what services they offer and how much they’ll cost. Depending on what you’re working with, an advisor might not be the best choice. Credit counselors can also provide help and guidance for those with less wealth.
- Ignoring Debt
One of the biggest mistakes people make when it comes to their personal finances is ignoring their debt. Ignoring debt doesn’t make it any less impactful, or make it go away. In fact, ignoring your debt is probably the best way to ensure it doesn’t go away! You can be sent to collections, small claims court, and suffer all manner of monetary penalties for letting a loan default.
If you’ve incurred a lot of debt, the first thing to do is face the fact that you made a poor choice. This can be tough, but remember, we all make mistakes. As long as you learned from your mistake and intend to do your best to make it right, it’s never a total loss. Every mistake should be viewed as a learning opportunity.
Don’t ignore your debt. If it seems overwhelming, you can work with a debt counselor, consolidate everything into one loan, or try the snowball effect. With the latter, you’ll start with your smallest debts, working your way up to your most expensive debt and paying them off one at a time. This can create a confidence boost and a ripple effect; bolstering your efforts and showing real progress in your journey to becoming debt-free.
Becoming debt-free should be your goal. You’ll never become financially independent as long as you’re tied to debt. Imagine trying to retire with thousands in personal debt; it simply won’t happen. Your financial future is just as important as the present!
- No Emergency Fund
Many financial experts recommend that you have at least three months’ worth of living expenses saved up in a high-yield savings account. This can cover costs should you suddenly find yourself out of work, or unable to pay your monthly bills for whatever reason. This emergency fund shouldn’t be touched for things like vacations or new gadgets, but reserved solely for emergency purposes.
Not having an emergency fund can spell financial disaster should a car break down, an accident occur, or you get laid off from your job. How long would your current savings account last in the event of a lay-off? Probably not long! Borrowing money only serves to deepen the financial crisis, making it that much more difficult to pull yourself out of the hole and move forward.
- No Retirement Fund
According to a survey conducted this year, only 21 percent of Americans don’t save any of their annual income. That’s about one in five people. That means one-fifth of the population has little to no money set aside for retirement. This unsettling statistic means that those people will likely have to work the rest of their lives (provided their health remains intact).
Let’s be honest here, none of us want to work until we’re 80 or 90. Can you imagine trying to work a full-time job at 80 years old? The Golden Years are supposed to be relaxing, fun, and work-free; our reward for a lifetime of effort. Not saving for your retirement is truly one of the worst money mistakes a person can make.
Even if you only put away a few thousand dollars per year, saving for retirement should be your top priority. While you can start saving at any age, the earlier you start saving, the better. Ideally, you’ll start putting away money for retirement in your early to mid-twenties. This will give you about 40-ish years to save up as much as possible.
- Overspending With Credit Cards
One of the most common traps that Americans fall into is overspending with credit cards. As of February of this year, consumer debt in America hit $4 trillion dollars. Not billion. Not million. Four trillion dollars. This includes all debt of course, but the sad fact is that a lot of consumer debt is tied up in credit cards.
Credit cards are essentially high-interest loans. You’ll pay an incredibly high-interest rate just to have a few thousand dollars at your disposal. Having $3,000 in your account can be incredibly tempting, and most people are unable to fight the urge and end up overspending. Once late fees, interest, and principal are taken into account, the balance can be well over that $3,000 limit.
Money mistakes can be incredibly damaging to your financial future. Consider these five mistakes and do your best to avoid them at all costs!