Are you not the best with money? If so, you’re certainly not alone in that regard. A sizeable number of people each day find it difficult to balance the books, with their expenditures outweighing their income, whether due to negligence or unforeseen costs.
With that said, with the right dedication and strategy, it’s not too difficult to avoid the financial pitfalls that many find themselves in. To be properly prepared, however, you need to know what those pitfalls are – which is where this guide will help.
Below are some of the main common mistakes that you need to avoid on the way to financial freedom.
Falling Behind On Payments
Once you fall behind on payments for things like your house, car, and utility bills, it can be difficult to break the cycle. This is because you’ll be hit with late fees and other additional charges every time you miss a payment – the type that will prevent you from getting in front with your bills. Oh, and being late can also be damaging for your credit score, which may cause problems for your finances on a long-term basis.
As a result, it is imperative you catch up ASAP on any late payments you may have at present. Then it’s a case of addressing your current spending to prevent this situation from happening again in the future.
Not Utilizing Insurance
You’re attempting to save money. You want to reduce as many continual bills as you can to ensure your budget stretches further. As a result, you think it’s best to avoid adding another bill to the pile in the form of insurance. After all, multiple insurance policies can quickly mount up, right?
Well, it’s time to forget about thinking this way. You need the right insurance – and you need it now.
Yes, there are costs associated with taking out insurance policies. Yet it is important you look beyond the short-term issue and see the overall picture. Think about if you were to suffer a serious injury, for example, or if your home’s roof became damaged. The cost for such a financial emergency could destroy your entire monetary plans in one fell swoop. In fact, over 30% of working Americans have medical debt they are struggling to deal with.
With the right insurance plan in place, however, you can limit the damage caused by such emergencies. This is especially the case with life insurance if the worst were to happen. Now you might be apprehensive about getting coverage like life insurance, as you may not feel you’re eligible. However, you can still get a policy even without a medical exam involved. This means there’s a plan for pretty much everyone – regardless of age or their health.
Using Credit Cards Needlessly
Using your credit card on a consistent basis is a wise method for building your credit rating. However, don’t mistake that for using your credit card whenever the opportunity presents itself. If you do this to cover any spending shortfalls, this often leads to racking up a large amount of debt in a short space of time.
Credit card habits are dangerous because it is too easy to stop paying attention to your budget. You can simply add a certain grocery shop here, some shoes there, and not even think about sticking to a certain spend limit.
To prevent credit cards from causing you a financial headache, stop using them immediately. Then start following a strict budget and attempt to pay off any outstanding credit straight away. Don’t just stick to paying the minimum requirements set by your credit provider, as this can take you years to do while the bulk of your money is going towards interest.
Paying Too Much Debt At Once
Yes, the previous section did mention paying off your outstanding credit as soon as possible. Nevertheless, you shouldn’t be throwing all of your money at any debts you’re dealing with currently.
Why? Well, if you use all of your spare money to pay off your debts, this means you won’t have any spare money for other issues. Plus, you never know when an inevitable expense rears its ugly head. Your laptop could suddenly stop working; you may drop your phone and smash its screen; your kitchen sink may be blocked with no makeshift remedy working, etc.
As a result, it makes sense to separate your money into two parts. The first part should be focused on your debts. The second should be used to build up an emergency fund. This emergency fund should feature enough money that at least covers one month of your living expenses.
Forgetting About Tax Season
Even though it arrives every year at the same time, tax season is still able to produce unwanted surprises. Instead of forgetting about your taxes, make sure they are at the forefront of your mind when budgeting.
The good news is you can find a tax withholding estimator provided by the IRS. With this calculator, you can gain a greater idea about how much you’ll owe in taxes – as well as how much you’d expect to receive back.
Ultimately, you don’t want to withhold too little or too much. If you go with too little, this may lead to a shock tax bill arriving at the end of the year. If you opt to withhold too much, however, your paychecks will be smaller. Getting the balance right is essential.
Not Setting Goals
Goals provide you with a target. They supply you with a path to follow. If you don’t have these goals in place, you are likely to flounder in your financial efforts.
There are various routes you can take when selecting your goals. Your first goal, for instance, could be to simply clear your credit card debt. More long-term aims may be to raise money for a home deposit or to begin your own business.
Once your goals are set, make sure to review these each year, so you know you’re on the right track.
Buy following the simple steps outlined above, and by setting a realistic budget (and sticking to it as much as possible) you can avoid some common money mistakes and keep your finances on track.