Nothing beats the joy of receiving a paycheck. That one tiny awaited moment delivers truckloads of happiness. Though this joy lasts for a short while, if you have a pile of pending bills and credit card debt, it can amount to something worthwhile. Maturity is when you realize earning is not just about collecting money, but rather managing it in the correct way. Hence it goes without saying, you must and MUST (in loud, bold terms) manage your finances well. We have enough on our plates, the last thing we need is money issues due to mismanagement.
Sadly organizing our finances is a task we often push to the side. Getting ahead in our careers can often become the focus of our time. While this may be critical in getting us that pay raise, that pay raise won’t matter if it’s mismanaged. The value of your net income or salary is important. But it’s not as important as learning the skills to manage your finances like pro. You can pick up these skills by learning from the mistakes of others.
Let me take you through some of these common money management mistakes. If you’re guilty of any of these mistakes, no worries. With the new year approaching, now is the time to get on track!
1. Failing To Save
Saving money is often regarded as a herculean task. We see it as challenging, difficult or simply impossible. After all, saying no to an interesting long trip or that new exotic restaurant in town can be difficult. But saving doesn’t mean saying no to everything and living miserably. It simply means setting some portion of your income aside for emergencies and building a base to purchase an asset in the future. You should save at least 20% of your income. Most people spend almost every single dollar of their monthly income and complain of low pay. But the reality is no matter how much or how low your job pays, saving is possible. Even if it’s just a few bucks, those few bucks can multiply over time.
2. Going Credit Crazy
We all know that credit cards are extremely convenient, maybe even too convenient. We all know the person who goes on a trip they can’t afford using a credit card. You may even be guilty of going on that shopping spree and putting it all on your credit card. Utilizing the convenience of a credit card isn’t the problem. The problem is people often end up spending more than their balance, making late payments and increasing unnecessary debts in their name. You can avoid this by understanding your income and setting a budget. If you’re relying on your credit cards and you’re charging way out of proportion to your income, then you need to cut the plastic now.
3. Lack of Financial Planning
People often fail to set short-term and long-term financial goals. You must include this task in your monthly and yearly to-do list. Plan your needs, allocate budgets, save aside for emergencies, set goals and act accordingly. Our income and financial goals change over time, thus it’s important to update our financial plans to reflect these changes. If you’re like me, you may feel guilty for having personal items like concert tickets or those fancy new headphones as a goal. However, it’s unrealistic to not spend money on yourself. The problem lies in burning away all the money at once. Set financial goals to build your dream house, send your kids to college, and plan that exciting world-tour. There’s nothing wrong with dreaming big. But if you’re gonna dream big, back it up with a realistic financial plan. In fact, having short and long term goals can help motivate you to set and stick to a financial plan. Plus, having a wishlist of dream trips and items to strive for is just plain fun!
4. Neglecting Payments
No fortune-telling machine can predict all your unexpected financial burdens ahead of time. There can be dark days when you are forced to delay payments due to emergencies. But the problem arises when we make it a habit. This often happens when we prioritize eating out or making other unnecessary purchases over paying our bills first. Neglecting payments can put you in a vicious cycle that never ends. One delayed payment is like a clear invitation to more troubles. When people fall back on paying their bills, mortgages, insurance or other commitments, the pressure builds up to extreme levels. Do not spend more than you can afford, pay all the bills first and then spend on your luxuries. Treat this as a mandatory formula and see the benefits.
5. Loose Calculations
This is similar to building castles in the air. Lack of accountability is the number one cause of financial stress. Earning less may not be the real problem, but spending more is often the main culprit. This is why you shouldn’t avoid the boring task of budgeting. Most people do not maintain an excel sheet of their income, expenses, assets, liabilities, and savings. Lack of proper documentation and organization invites doubts. Often, you end up spending more for a particular thing, only to forcibly cut back on something else. The solution for this uncertainty is clear calculations. A number of apps can help make the process easier, but the motivation to utilize these apps must reside in you. If you need extra motivation, just remember, living with a negative balance is more troublesome than living with a small positive one.
If you’ve made any of these common money mistakes, don’t worry. You’re not alone. Failing to save, going credit crazy, not setting financial goals, neglecting payments and making loose financial calculations aren’t fatal mistakes. However, it’s important to own up to your mistakes and come up with a plan of action. No one can take charge of your financial matters or save money on your behalf. However, we hope our insights into both traditional and new money management tips can help empower you for a better financial future.
Do you have a teenager that you’d like to train how to mange money at an early age? Here’s a few tips how!