8 Most Common Financial Mistakes People Make
We’re human. We make mistakes. We make tons of them on a daily basis, but when we ignore our mistakes and don’t try to correct them, we develop habits that could end up hurting us in the long run. When it comes to money, sometimes we learn the hard, costly way.
Financial mistakes come in many different forms. It could be that you impulsively purchased something on your credit card, only to realize you couldn’t afford to pay it off quickly. Well, you can still solve that with saving more eagerly and spending more consciously. For other people, these mistakes end up with more serious consequences, like having to spend thousands of dollars out-of-the-pocket on medical bills when health insurance would have covered it if you had it.
Whether you’re unwittingly making these financial mistakes or doing it without caring about the consequences, the most important thing is you avoid these mistakes and you make an effort to get your financial house back in order.
Avoid These Common Financial Mistakes
Not Going to College
Going to college may be optional for many people, but those who complete their degree tend to enjoy larger incomes than those who only finished high school. According to the data of National Association of Colleges and Employers, college degree holders earn double than high school graduates.
If you want to start your adult life with better earning potential and career, a college degree will set you on the right path. That’s not to say that high school graduates and college dropouts don’t have a shot in landing great jobs and income, but it’s more realistic to expect that not going to college limits your opportunities later on in life.
Delaying Paying Student Loans
After getting your first professional job post-graduation, paying off your student loans may be at the absolute bottom of your to-do list. After all, you just landed a job that pays “adult money” so there’s no harm in getting a better apartment or a nice car, right?
Unfortunately for those who think this way, student loans will loom over them unless they start paying them off. The longer you delay the payments, the more interest you have to pay. College graduates pay an average of $28,000 in student loans and it’s better to tackle them ASAP so you can start building your life. Imagine what your finances would look like if you didn’t have your student loans hanging over you. That’s hundreds (or thousands) of dollars you could put towards travel, a mortgage, a new care, or other things that matter to you without worrying about your old loans.
It may take some sacrifice, but this financial mistake can haunt you for years if you let it.
Maxing Out Your Credit Cards
We see credit cards as common items in our wallet and swiping them has become the de facto way to pay for purchases. But what many people fail to realize is that owning a credit card has its drawbacks too, such as suffering from more interests and lowered credit score when you max the credit limit.
Additionally, people who make the mistake of maxing out credit cards take a blind eye to other serious consequences, like getting into deeper debt for a longer time. It’s borrowed money and you are paying an expensive interest to be able to use this. Try to limit your credit card charges to up to just 30% of your available credit, pay for ordinary and daily expenses with cash, and make sure to pay your credit card bill in full each time.
Living Beyond Your Means
We’ve been told time and again not to keep up with the Joneses, but many people still have this weak spot for insecurity. So they end up spending money they don’t have trying to live the Joneses.
For all we know, the Joneses are just putting up a shiny and expensive front to cover their rather dark debt secrets. If you follow suit, you’ll live an expensive lifestyle that decimates your income and limits your ability to save and invest properly. Then you end up just like them, borrowing money to pay other debts while constantly spending on trivial things.
Look at your budget and limit your spending to what you can afford. Cut costs where you can and make room for things that matter most to you. Don’t fall into the pressure of spending like every rich kid in town. You don’t want to end up getting to retirement age without a retirement fund to fall back on.
Not Having Insurance
It’s good to save money, but if you’re doing it to the expense of having insurance at all, you’ll end up spending more in the future. Insurance is basically your emergency fund for big unexpected car, home, and health issues.
It’s easy to do without insurance at all when you’re young and perfectly healthy. It’s a financial mistake we see many people make many times over. But health insurance can give you the buffer you need even for non-health related incidents like slips and falls that could result to thousands of dollars on therapy, hospitalization, medication, and recovery.
Also consider this scenario: you can catch a virus anytime or develop kidney stones without knowing. What you pay out-of-the-pocket at the hospital could have been covered by your insurance.
Life insurance can also be an invaluable investment to protect your beloved’s welfare in case of your passing. What about other unexpected incidents like home theft, fire, and car damage? Wouldn’t it be nice to have insurance in place so that no matter what happens, you have everything in order?
Many people make the mistake of thinking insurance is useless because they pay and they pay and they, but never end up using it. The truth is, it’s better to keep paying for insurance you never use so when you need it, it’s there.
Another common mistake we see many people make is to just keep on saving and putting money in places where money only slowly grows, or even lose value with inflation. If you’re doing this, you’re missing up on big opportunities to rapidly grow your money over time and with potentially higher returns.
Waiting to invest and not investing at all hinders your ability to grow your wealth that can aid in living your desired lifestyle and building a solid nest egg through your retirement years. Investing early, investing more money and investing often will help you secure your financial future and in a more profound way than just saving money. Aim to invest the surplus of your income consistently across diversified investment vehicles to minimize risks and improve your ROI.
Not Asking For Raises
Your choice of job or career is an important, if not the most important financial asset you could ever have. It generates income that finances your lifestyle and paves the way to achieving your financial goals.
But many people mistakenly think that they shouldn’t or couldn’t ask for a raise. Whether you only have a short tenure with the company or has been doing the same job for so long, if you think you deserve an increase in salary, then you should ask it.
Increasing your salary, by say 8% each year, places you in an excellent position financially. However, if you receive the same income for more than a couple of years now, you’ve lost the opportunity to save and invest more and bigger amounts.
Just remember to have an excellent track record and best performance to back up your request for salary increase.
Not Saving for Retirement
Not saving for retirement is a mistake committed by many people. Retirement often takes the backseat as we course through different phases of life and deal with various needs. However, some people don’t think saving for retirement as a top priority and only get to planning it when they’re retirement, a time when they’ve missed out on a lot of opportunities for saving a more solid nest egg.
You might think that you need to save for different things other than retirement at different points in life. In your 20s and get your first dip of your grown up salary, you might spend on a newer car or better housing. In your 30s, you were probably spending on growing your family. Later on, you need to spend on the kid’s education. And the mistake is that all the while, retirement don’t even get a dime because you were counting on your workplace’s retirement plan and pension.
But to think, you could be living two or three more decades after retirement and you need to make sure that your savings would last as long as that. Otherwise, you’ll have to get back into the workforce. So if you’d rather feel independent and secured in your golden years and stress about retiring, make sure to map it out as early as you can.
Not Having a Financial Adviser
The easiest way to avoid making more financing mistakes and correcting the existing ones is getting professional financial advice, but many people look at it as an extra expense.
Hiring a financial adviser could only cost a fraction of the potential waste on unwise and impulsive financial decisions. Consider the adviser as your physician who can assess and evaluate the status of your finances, spot the issues and weaknesses and prescribe programs to bring back order and strength to your financial life.
A financial adviser becomes even more essential if you want to get a better grasp of your finances and be able to control your money, not the other way around. It’s wise to get solid and professional advise when it comes to planning out budget, retirement and investments to minimize wastes, improve your returns and build your wealth.
Mistakes are natural part of life. They help us grow, get more insights, and hopefully make better decisions in the future. Some money management mistakes are more obvious (like spending more than you earn) while others require more critical-thinking, especially when it comes to saving and investing.
However, many of these common financial mistakes can be avoided if you make decisions based in logic rather than emotion and desire. Additionally, professional advice is also instrumental in bringing order to your finances.
Your financial life could be so much better if you learn from your past errors and others’ mistakes and become more open in learning and growing.