This article is about planning personal finances and it gives some tips how to avoid mistakes and save your money.
8 Mistakes in Managing Personal Finances
The ability to manage money wisely is one of the main challenges of the adult life. Especially when inflation is increasing and exchange rates are completely unpredictable, as it happens in some countries with unstable economics.
Mistake 1. You Do Not Maintain the Budget
The budget is generally the most basic thing in the financial planning. Therefore, it is especially important to be careful when drafting it. To begin with, it is necessary to make up your own budget for the next month and year.
For a basis take your monthly earnings, subtract from it such regular expenses as rent payment, expenses on transport, then allocate 20-30% on savings or payment of the credit. The rest can be spent on life – going to a restaurant, entertainment, etc. If you are afraid that you can spend too much, limit yourself to weekly spending by a certain amount of cash. The habit to earn and save is something you develop right from your early college years. Writing endless “Write my essay 4 me” to your groupmates is a kinda grim prophecy upon your financial future.
Mistake 2. You Do Not Save Money for Unforeseen Expenses
When people borrow money, they think they should return it as soon as possible. They give everything they earn to return this money. In whole, it is a quite rational decision. However, if you do not have a “stash” for a rainy day, then in the case of an emergency (for example, an urgent repair of the vehicle) you have to get into new debts. After each salary, save $50-100. Have at least $1000 in the bank account in case of unexpected expenses and gradually increase this financial “airbag.”
Mistake 3. You Do Not Have an Insurance in Case of Disability
People do not like to think about death and disease: it is understandable. Those who think about it, believe that the worst that can wait ahead is a sudden death, that is why life assurance is the most popular option. However, it is more important to take into account a more likely scenario, namely, the inability to make money. Be sure to get a full life and health insurance. If you already have it, carefully study the terms of insurance, so that in the contract there are options for different occasions. Of course, let us hope that this insurance will never come in handy.
Mistake 4. You Do Not Have Life Assurance
It is very important to assure your life if you have young children or elderly parents you have to look after. Look at different options for assurance in order not to overpay for the contract. Perhaps it will be enough for you to have it for 5 to 30 years. That is the time when children are still dependent. Study the proposals of different insurance companies. Use the services of an expert in financial planning – he/she can offer the best option for insurance.
Mistake 5. You Follow the Advice of an Investment Expert
An expert on personal investment can help in the case when you want to invest money, but she/he is not able to see the full picture of your financial situation. So, she/he does not need to know if you have money for additional long-term investments and whether you have put off enough cash for the unforeseen expenses.
Mistake 6. You Believe in Ratings and Forecasts
People usually look for quick ways to make a decision. Everyone loves to rely on ratings or read experts’ forecasts. However, in the modern world, everything is changing too fast. And expects and ratings in one day can completely change. So, do not expect that investments in the next year will have the same results as in the past.
Mistake 7. You Do Not Pay on Credit Card Debts on Time
Often when using a credit card, people more easily make the minimum payments offered by the bank (usually 10% of the total amount of debt) and feeding themselves with illusions that they paid off with the bank. Then a few months later, they are surprised to find out a huge amount of debt on the card. In addition to the accumulated amount of the main debt, percent for using credit was calculated and among all options, outstanding balance became higher. Therefore, pay the entire amount of debt within the time period set by your bank, and not only its part.
Mistake 8. Your Credit Card Limit Exceeds the Monthly Income
If a credit card gives us the opportunity to use the amount above our salary, we can succumb to the temptation and spend more than we actually can afford. The late payment of credit card debt can lead to higher money-spending. In this regard, contact your bank and ask to lower the limit on your credit card.
We hope that this prompts will help you to manage your finances properly and your bank account will be safe. Think over your temptations rationally and avoid falling into the trap of huge debts.