The money pit is one of those things that always seems to follow you wherever you go, and even though you never want to end up in it, it sometimes seems like it’s unavoidable. The problem is we often tend to get into habits both good and bad with money, and sometimes we need to break them in order to be better off financially. Here are five common financial mistakes to be aware of that you can avoid making.
Failing To Control Spending
Often the biggest cause of excessive spending is a credit card because the idea of buying now and paying later can appeal to you. The problem is when the credit line is often higher than the amount of funds in your bank account, you tend to think it doesn’t hurt to just buy with the money you don’t have now and pay later. But you keep on spending on other things and eventually, your credit card bill becomes much larger than you think, and you get into credit card debt.
The answer is to have a working budget whether you use a credit card or not so that you don’t spend too much either on big or small-ticket items.
Not Buying Cheaper Alternatives
Another mistake may be buying things you need, but going with a more expensive option than a cheaper alternative. For example, with a big-ticket item like a vehicle, buying a brand new or very new model when an older used one would be better is often very unwise. Doing so with a vehicle will usually mean getting a loan that will be worth more than your vehicle by the time you’re finished paying for it.
Even with small ticket items like food, for example, buying the cheaper store brands or buying food sparingly and having leftovers to use can also save hundreds of dollars in the long term. Buy what you need but don’t just go with name brand or recognition.
Failing To Set Aside Savings Completely
It seems like it would be routine to have money set aside each week that would be saved just in case it needed to be used for an emergency. But all too often when savings are accumulated, they end up disappearing because savings ended up being that extra pocket to tap into for entertainment or fancy restaurants. When you decide to save up money for emergencies, make sure you have the savings or CD account that they’re kept in labeled as such so that it’s never used until you’re ready.
The more you have in savings, the less likely you are to need personal loans like installment loans or payday loans. These loans do have their place, but it’s better not to have to borrow too often from them.
Not Investing In Funds That Could Build Your Wealth Later
Even more so than savings, it’s good to have money in 401k’s, IRAs or other brokerage accounts. Many young people are readily willing to contribute to a company 401k plan, especially if their employer matches the amounts they contribute; but many of them have not opened IRAs or made other investments that could benefit them.
You shouldn’t make the same mistake because by having money in an IRA or brokerage, you can protect it from inflation, have it earn higher interest or make dividends and have it ready for retirement in the long-term, but even sometimes ready for big purchases such as your child’s college savings or a home purchase in the short-term. Never lose out on investment opportunities.
Not Carefully Communicating With Family Or Friends About Money
Sometimes the best strategy to have with money management is to be open and honest about how you use it, and involve your immediate family whether it’s your spouse and children, or even your parents. When you have people working on the same team as you it’s often much easier to overcome money struggles especially with their support. And if you need to, ask for help because most times extended family and friends will know that you’re not trying to take advantage of them. But if they do loan you money, make sure you pay it back to them as soon as possible.
Sometimes we can get carried away and not have enough money to cover sudden emergency expenses. If an unexpected emergency happens, such as a severe injury that requires medical attention, and you are not financially prepared, online loans through direct lenders might be an option for you to consider.