Many people struggle with money. Though a challenging economy and sociocultural factors may be to blame, you can still do your part to try to make intelligent choices with your money. Here, we’ll look at some of the most common financial mistakes that can lead people to economic hardship.
Table of Contents
Unnecessary Spending
It may not seem like a big deal when you pick up that double-mocha cappuccino, have dinner, or order that pay-per-view movie, but every little item adds up. If you have debt, just $25 per week spent on dining out costs you $1,300 per year, which could go toward credit cards or other payments. If you’re enduring financial hardship, avoiding this mistake really matters.
Never-Ending Payments
Ask yourself if you really need items that keep you paying monthly, year after year. Consider things like streaming services and high-end gym memberships. Are these needs or wants? A cheaper gym may get the job done, allowing you to save the difference. When money is tight, creating a leaner lifestyle can go a long way to cushioning yourself from financial hardship
Living With Large on Credit Cards
Using credit cards to buy non-essentials is kind of familiar. But even if some people are willing or able to pay double-digit interest rates on luxury clothing and other expensive items, it’s not always wise to do so—unless you can pay off the card before the end of the month. Credit card interest rates make the charged items a great deal more expensive. Sometimes, using credit can mean spending more than you earn
Spending Too Much on Your Home
When it comes to buying a home, bigger is not necessarily better. Choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance, and utilities unless you have a large family. Before you buy a house, consider the carrying and operating costs beyond your monthly mortgage payment. Do you really want to put such a significant, long-term dent in your monthly budget?
Misusing Home Equity
Refinancing and taking cash out of your home means giving away ownership to someone else. Refinancing might sometimes make sense if you can lower your rate or refinance and pay off higher-interest debt.
Not Having a Plan
Your financial future depends on what’s going on right now. Maybe you spend a lot of time watching streaming services or scrolling through your social media feeds but haven’t yet reviewed your finances. That’s too bad because you need to know where you are going. Make this a priority now.
Not Saving
Many households live paycheck to paycheck—and there’s no sign of improvement.Unfortunately, this puts people in a precarious position—where every dollar matters and even one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits.Many financial planners will tell you to keep three months’ expenses in an emergency fund account where you can access it quickly. Loss of employment or economic changes could drain your savings and place you in a cycle of debt paying for debt.
Not Investing in Retirement
If you do not get your money working for you in the markets or through other income-producing investments, you may never be able to stop working. Making monthly contributions to designated retirement accounts is essential for a comfortable retirement.Take advantage of tax-deferred retirement accounts and/or your employer-sponsored plan. Understand when your investments will grow and how much risk you can tolerate. If possible, consult a qualified financial advisor to match this with your goals. Paying Off Debt With Retirement Savings.When the debt gets paid off, the urgency to pay it back usually disappears. It will be very tempting to continue spending at the same pace, which means you could go back into debt again. If you pay off debt with savings, you must live like you still have a debt to pay—to your retirement fund.
