Becoming financially independent and creating wealth is a dream of many. Managing your finances well is an integral part of achieving this goal. However, it is not just about what you are doing right that will eventually get you there but also about things that you aren’t doing right that may be draining your money.
Below I have listed a few common money mistakes that you are probably making that are destroying your financial life.
Common Money Mistakes You are Making
- Not keeping track of cash flow: Not keeping a track of your income and expenses is probably the worst thing you can do for yourself. You won’t know your mistakes and how to limit your expenses if you are unaware of where you actually spend your money. BudgetGuru can help you with this as you can easily track your transactions on the app and keep a record of all your expenses, investments, and savings.
- No emergency budget: No one is immune to emergencies. This is why the first thing that is suggested by any financial advisor is to keep an emergency fund worth 3 to 6 months of your living expenses. Your emergency fund is the cushion that saves you from crashing into a pile of debt in case you lose your job or are faced with a huge medical bill.
- Not having health insurance: Healthcare costs are one of the main reasons people end up losing their lifetime earnings and going into debt. One simple procedure in a good hospital can cause a major blow to your pocket. Having healthcare insurance softens this blow by relieving you of the burden of paying huge hospital bills when you are already worried about your or your loved ones’ well-being.
- Depending heavily on your credit card: If you are heavily dependent on your credit card to meet your monthly expenses and pay the minimum amount due every month then you are entering into a major debt cycle. It usually takes years to be completely rid of credit card debt. If you lack self-control then don’t get a credit card. However, if you can use the little plastic card wisely then credit cards can actually help you save money with all the vouchers, miles, and reward points you get with them.
- Becoming a victim of lifestyle inflation: Did you just get a good hike? Was your first thought about upgrading your lifestyle instead of expanding your investment portfolio? Big mistake! Most people are a victim of lifestyle inflation. It is not wrong to expect better living conditions for yourself once you increase your earning capacity, after all, we don’t earn to live in the future but to enjoy our present too. However, if you are living comfortably then you might want to hold off increasing your expenses before you have created enough investments in your portfolio that’ll help you achieve your financial goals. A major cause of this lifestyle inflation is the need to show off our well-being and ‘fun’ lifestyle on social media. Let’s try to exercise some self-control and think about creating better lives for our children’s future instead of a virtual life on social media for a bunch of strangers.
- Purchasing things just because they are on sale: Since the introduction of the e-commerce industry, shopping has become so easy. Not just that, the increasing competition has led to various e-commerce websites announcing sales every other month. The heavy discounts on some otherwise expensive items have swayed so many of us to purchase something that we didn’t really need. We are all guilty of spending huge sums of money on things we did not need just because they were on sale and ending up endangering our monthly budgets.
- Spending a bomb on weekend parties: ‘Work hard. Party Hardy’ This mantra is so commonly followed among today’s youth that they end up spending a huge chunk of their income on weekend parties. Many people end up spending more than they earn on a night of frolicking that ends up being added to their credit card debt. While we do not discourage taking time off for yourself, we do suggest keeping a limit on your spending to avoid dreading the fun outing when you look at your bank account the following day.
- Spending all your savings on marriage: People save their entire lives just to spend all the money on hosting a huge celebratory feast to impress relatives for their child’s wedding. No sound financial advice would deem this right for your financial life.
- Considering frugal as cheap: A lot of people confuse economic spending with being cheap. An economic spender does not compromise with quality but does his research well enough to buy the product or service at the lowest rate.
- Paying off the wrong debts first. People don’t understand which debt to focus on paying off first. Is it the credit card bill, the education loan, house loan, or another personal loan? The best way to sort your debt is by paying off the ‘bad’ debt with the highest interest rate first. This way you’d end up paying a lesser amount in interest in the long run.
Be smart with your money and avoid these mistakes if you want your money to be good to you.