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Top 5 Most Common Financial Mistakes

There’s a saying that goes “you reap what you sow”.

 

What you do today can have an impact on your future. So, the question is, are you making all the right financial decisions?

 

To make sure that all your hard work comes to fruition, let’s take a look at the 5 most common financial mistakes people make. Although it is normal to make wrong decisions from time to time, there are a few financial issues that you can easily avoid!

 

No 1:

 

Living Paycheck to Paycheck

 

Living paycheck to paycheck may not seem like an issue on the outside. After all, it does cover most of your monthly expenses. However, we often do not realize that it does more harm than good to us in the long run. Does it ever occur to you that you might not have enough to cover during the unexpected rainy days? To keep your heart and bank from breaking, we advise strongly to get some sort of extra income so that when it starts to pour, you’re able to stay afloat! You can do so by working part-time if you’re a student. Alternatively, if you prefer a more flexible side gig, you can either sell unwanted items online or be a freelancer!

 

If you haven’t built yourself an emergency fund – do not worry – it’s never too late as long as you start now. Allocate your income by following the 50/30/20 budgeting rule, where 50% goes to your needs, 30% to your wants, and 20% to your savings. Then, store them respectively in a savings account (for emergency funds) and current account (for daily transactions). This way, it’s clear which account you can spend from and which you cannot. Keep practicing this and you’ll be prepared financially.

 

No 2:

 

Paying for Things that You Don't Need

 

This one is going to hurt but we promise, you’ll thank us later when you’ve achieved financial freedom (or early retirement)! We understand it’s not easy to sacrifice your wants. The good news is you don’t have to let go of all of them except for those that you don’t really need.

 

So, here’s what we advise you to do. First, be honest with yourself. Do you really need that expensive gym membership? Secondly, make a list of all your necessities, especially things you need to pay for monthly. Then, start identifying all the unnecessary expenses. It could be an unreasonably expensive food subscription, cable television, VOD services, and so on. Once you’ve cut out all these expenses, you’ll be surprised how much more money you’ll have that can be used to expand your savings.

 

Now, you’ll have space to plan even better goals such as an early retirement, or to achieve financial freedom fully. You could even start that business you’re planning to kick-off or financially support your dream wedding. The possibilities are endless when you know where to put your money

 

No 3:

 

Frivolous Spending

 

Yes, we all love that freshly brewed cup of coffee in the morning. What’s even better is not having to make it ourselves. Those quick pick-me-up snacks at the mall or at the petrol station sound just as amazing. However, think about this, do you want more money or more coffee? If your answer is more money, you’ll have to stop impulse buying and be more mindful about your spending. We get it, it’s not rocket science, but it’s always easier said than done! Let’s break it down further, spending $25 on these little things weekly can add up to $1,300 a year. That sum could have helped you pay off your loan faster, expand your savings, and more. So, the next time you feel like reaching out for a snack, think of how you could be richer in the bank!


No 4:

 

Living on Borrowed Money (Credit Cards)

 

You may be familiar with how a credit card works. Every time you make a transaction, the bank first pays the merchant on your behalf. Then, at the end of the month, you’ll receive your credit card bill which would be the total of what you owe the bank. Spending money that’s not yours is easy and may sound like a dream come true especially when you get to earn cashbacks and rewards. We totally get it. However, if you’re not careful this may lead to overspending. That’s when your dream turns into a nightmare. In reality, if you don’t pay back what’s owed on time and in full, chances are you’re going to have to pay extra. On top of this being among the most common mistakes, it is also one of the most dangerous. Hence, it’s always better to track your spending and spend within your means.

 

No 5:

 

Not Having a Plan

 

To be financially successful, you’ll need preparation, and creating a plan is going to do just that. This is the most crucial one out of all that we’ve discussed so far. As we’ve mentioned briefly earlier, your financial future depends on what you decide to do with your money now. While it’s great to spend your free time doing things you enjoy such as catching up with your favorite series or hanging out with your friends, putting aside 20-30 minutes a day to manage your finances can help you in the long run. Start reading up on financial resources and work on your financial management. With great financial planning, spending would never be an issue as you’ve already created a balance spending system. *wink*

 

We’ve finally wrapped up the 5 common financial mistakes! See, personal finance management isn’t all that hard especially when you have a plan. Once you have an idea where you want your money to go, follow up with action by starting to place them where they belong such as a savings account or a fixed deposit. With good financial management, spending becomes less guilty as well, knowing that you’ve got back-up money for rainy days!

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