Personal finance is one of the most important aspects of an individual’s life. Correct personal financial decisions can lead to excellent standing in terms of funds and material, so it would not bode to well to make any mistakes. Personal finance is simple and easy to understand which is why it can be such a powerful tool.
So why do so many people get it wrong? Plenty of people out there are hampered with crippling debt. Mistakes are being made all the time, and people are not catching them. Here are five common mistakes that a ton of people make, so keep these in mind so you can learn from other people’s mistakes.
Failure to Budget
This is a big one. A personal budget is the number one key to controlling expenses, income, savings, and more. It is essentially a manifesto of your financial standing that provides a simple snapshot of what you are worth and where you stand. Many people do not understand budgeting, nor do they understand the impact it can have. For many cases, a simple budget is the reason for financial well-being. These are easy to learn. In the end, it is only simple addition and subtraction, yet it has a ton of power.
Failure to Invest
Many people in the world simply do not have any faith in investments. While it seems smart to save your money and skip investing, this is actually a common mistake made by many. There are cases where investments are dumb; for instance, no one should put in 90% of their worth into a single investment. The potential and risk for failure are too great.
With that being said, there is a way to invest smartly. It should be done with care and research (and certainly not with most of your money). With that being said, investing is a great way to get money to work for you instead of festering in an account with minimal interest rates.
Credit card debt is currently one of the leading forms of debt throughout the nation. Clearly there is a trend of excessive credit card expenses that is gripping the nation. People are basically spending too much with their credit cards. Outstanding debt is an infectious disease that spreads unrelentingly. Anyone can lead themselves towards a full recovery after hard work, but there is only one cure to this plague: self control. Simply not spending or using a debit card more often are two ways to cut out credit spending. The main point is to keep yourself from racking up debt. It is easy to forget about the credit tally, but self control is the number one way to minimize that price tag on your head.
Buying a Large House
One sign of wealth that is universally recognized is the size of one’s house. If someone has a big house, it is usually assumed that they have money. With that being said, when someone lands a good salary, one of the first moves is to buy a big house. This is a big mistake for most people. Larger houses are accompanied with more expensive taxes and utilities. They are more expensive, and interest rates increase right along with initial costs. In short, buy a small house. The expenses will be lower which leaves more room to save and invest.
Buying a New Car from the Dealership
Similar to the big house advice, buying a new car is another mistake that is made regularly. When someone starts making more money, the next natural move is to buy a new car. This normally means taking out an auto loan which is paid off via monthly payments. This is a big mistake for people who are just starting out in the labor market. New cars are enticing, but these cars depreciate as soon as they leave the dealer. Despite their decreased value, there is an expectation to make payments for several years until the entire original price is paid off. On top of monthly payments, the car may require maintenance on top of these payments. Overall, it is not a smart move for someone with limited expenses.