Managing personal finances is not an easy task. Despite the availability of information, a lot of specialized calculate tools [find out more here] and financial consultants, we continue to make financial mistakes.
Let’s take a look at the 5 most common ones.
#1. Don’t Keep a Budget or Record Expenses
Budget is the basis of financial planning. No matter how much you earn, it is important to plan and record your income and expenses.
Take as a basis your monthly earnings, subtract from it constant expenses – rent, bills, fuel, Internet, phone, loan payments, including mortgage. Allocate at least 10% of earnings to generate savings. If you do not have loans, you can increase this amount to 20-30% of income. The rest can be spent up to you – going to cafes, entertainment [but don’t forget about time-management],clothes, gifts, etc.
#2. Don’t Save Money for Unforeseen Expenses
If you do not have savings, then any unforeseen situation (illness, car breakdown, fine) will unsettle you. You will have to pay by credit card or ask for a loan. Therefore, it is better to try to save at least a small amount from each salary. Gradually increase your savings to an 3-6 months income amount.
#3. Borrow More Than Monthly Income
It’s better that your credit card limit is less than your salary. Do not rely on your willpower. At certain points, we can succumb to the temptation and spend more than we actually can afford. Therefore, do not be too shy to call your bank and ask make the credit limit lower.
#4. Don’t Insure Your Life and Health
People do not like to think about negative events. It seems that diseases and troubles happen only to others. We urge everyone not to be frivolous and to think not only about yourself, especially if you have children or elderly parents. Examine the offers of different insurance companies [start from this list post], analyze the terms of the contract and choose the option that is best for you.
#5 Think Only About Investment Income
Usually, when we think about investments, we ignore possible losses and fix ourselves only on profits. Majority makes elementary mathematical calculation mistakes.
For example, if in one year you lost 50%, and in the next year you received 50% of the profit, then you did not go to zero – you lost 25% of the savings.
Therefore, always carefully consider the results, think about the risks and diversify your investments. For the same reason, they are not advised to start investing the money that you will need in the nearest future. It is better to start when you have already formed a financial airbag and you are ready to invest money for long periods.
What personal finance mistakes would you add to the list of the most common? What mistakes are you making? And how do you fix them?