It takes a lot of time to build a business and save the profits than it is to squander or lose it. In order to avoid the financial mistakes that could lead to one losing his/her money and slumbering into financial hardship and stress, it is important to start assessing sources of income, expenditures and managing cash flow. Below are a few common financial mistakes that can ruin or jeopardise ones financial source of income or security either in the long or short term.
Having no plan vis-à-vis ones finances is a huge mistake. Budgeting and financial planning is essential in the accountability of one’s cash flow and managing funds adequately to avoid future financial difficulties and troubles. This is also applicable in personal and business accounts. Having a loan repayment plan is also important as well
Extravagant or excessive spending is one of the major financial mistakes people make. When one has some cash influx be it from a leftover loan or income or revenue, the temptation is to live life to its fullest even if it implies leaving above ones means. In so doing it could lead to a mountain of debts / loans and credits. This increases the interest and could determine ones credit score in the long run.
Managing funds could be likened to running a vehicle; one always needs an emergency kit including a spare tyre. Persons should always have an emergency fund for handling financial crisis. Not setting aside an emergency fund is a financial mistake individual as well as corporate entities make.
In the advent of a loss of employment or source of income or revenue, not having a backup fund is a mistake. It is advised to have an emergency fund made up of at least three months’ worth of expenses. This three months buffer period is the minimum for someone to get back on the reins of the horse and start making cash to flow back.
Using the emergency funds to purchase wants rather than needs as is its role e.g. using emergency funds for buying fashionable clothes or leasing an expensive car. During periods of financial hardships limit purchases and reduce subscriptions to certain goods of ostentation such as radio, television, video games, online gaming, or magazines subscriptions etc.
Failing to account for every expense especially the low spending that separately doesn’t seem significant till it accumulates e.g. a daily beverage such as a cup of coffee not taken into consideration in the long run could present a deficit
Making a living off the credit card system or from borrowed money. This means one is spending more than one is earning. Credit cards should if possible be used only for emergency situations. Credit card purchases always come with interest payback rates attached to it. Try getting a credit card with low interest rates.
Purchasing items without conducting a needs evaluation or assessing if it fits with the allocated or available budget. For example buying a less expensive, more useful and affordable car rather than a flashy car that will serve the same purpose. One has to take into consideration factors like fuel consumption rate, engine size, maintenance cost and availability of spare parts before engaging in the purchase of a vehicle.
Poor payment strategies for credit cards expenses. Paying little of the credit every month makes the credit draw longer hence increasing the interest rate paid with respect to this credit. Paying off a larger part of the credit every month means decreasing the payoff time hence reduces the accumulation of interests.
Using money balances from loans such as educational loans is a good example of a financial mistake. All loans are going to be repaid eventually and the longer it takes the more interests is paid as well. The mistake most people do is to use up leftover loans rather than investing or using it to repay the loans.
Another mistake is not having insurance to cover certain unexpected situations such as medical conditions and in the worst of cases deaths. This is usually necessary when one has others dependent on he/she. Someone who is independent financially might still needs an insurance. Insurance coverage should be considered by families fully dependent on small income.
Comfort in present financial situation and not investing nor ignoring other additional opportunities for income growth. One doesn’t know tomorrow so no matter how things may look like or seem financially now, markets could crash, unemployment could kick in, family might increase, etc. So always safeguard the future and that of your family or business.
Trying to build a credit value or score too young especially when in college. Most often in this case the debtor makes the mistake of having lots of accounts and is side-tracked and eventually finds it more difficult to pay back not forgetting the accumulating interests. Above all, urban myths building a suitable credit history does not require a lot of accounts and time but can be done in less than three months.