There comes a time in life when you need to get serious about finances. If you do not manage personal finance efficiently, you will find yourself in serious financial trouble. Here are the 6 financial mistakes that you must avoid.
Spending More Than You Make
If you make 100 bucks, do not live a lifestyle that requires you to spend 200 bucks. Living beyond your means is a huge common financial mistake. If you cannot afford something, don’t buy it.
Do not give in to impulsive purchases. If you like something that is beyond your purchasing capacity, don’t just whip out your credit card.
Instead, take a week or two to think whether you really need it or not. Even if you are planning to lease something, make sure you can afford it.
Not having debt is one of the best financial things that can happen to you. When you start accumulating debt and are unable to pay it off, you will find yourself in a vicious cycle of debt.
When you take a debt, make sure you manage your budget properly and pay it off on time. Debt management can be tricky when you have multiple loans. If the loans have a higher interest rate, it will get more difficult to clear the debt.
If you do have debts, consider debt consolidation. You can approach banks or online lending platforms for debt consolidating loans. It will help you clear the debts at once.
Not Having a Savings Plan
Spend the money left after saving, don’t save what is left after you spend. Consider your current income and make a savings plan that will work for you.
Ideally, you must set aside at least 10% of your income for savings and spend the remaining amount on whatever you need. If you feel you cannot start with 10%, start smaller and slowly go your way up.
Every year, increase the amount you set aside for savings.
Not Building an Emergency Fund
An emergency fund will help you out if you come into an unexpected financial crisis. It could be an accident, loss of a job, car repair, etc. In such cases, you can use emergency fund rather than dipping into your savings or spending most of your paycheck on it.
Put aside some money to set up an emergency fund. It is recommended that the emergency fund has enough money to sustain 6 months with ease. Use this fund only in case of an emergency – do not withdraw money for your everyday expenses or shopping.
Having One Source of Income
You may have a steady job but that doesn’t mean you should have only one stream of income. To secure yourself financially, you need to build a retirement and savings portfolio. And to successfully do that, you should have more than one source of income.
You can generate multiple sources of income from freelancing, dividends from stocks, blogging or rental properties.
By avoiding these financial mistakes, you can improve your financial health and secure a better future for you and your family.
Shiv Nanda is a financial analyst who currently lives in Bangalore (refusing to acknowledge the name change) and works with MoneyTap, India’s first app-based credit-line. Shiv is a true finance geek, and his friends love that. They always rely on him for advice on their investment choices, budgeting skills, personal financial matters and when they want to get a loan. He has made it his life’s mission to help and educate people on various financial topics, so email him your questions at firstname.lastname@example.org.