To be successful, we all need to know how to handle our finances. It may not be your main priority, but believe it or not, money will play a big role in your life.
It dictates the type of lifestyle you can enjoy. The type of cars you drive and houses you can live in. If you aren’t materialistic, the steady flow of money will allow you to help more people with your advocacies. Because ultimately, money can buy you happiness or at the very least affect your state of happiness.
And this is not a skill that we are blessed or taught at school. Most of us just splurge non-stop and wonder how we can survive before the next payday. Awareness is the first step. And these are money mistakes everyone should avoid.
Not Having a Budget!
I know you hate math. You get all dizzy and your gag reflex goes crazy when you see numbers. But you should bear with it. Without knowing what you currently make and what you can afford, how can you control your money?
It wants to be controlled, but if you let it loose, it will surely control you. So get a leash and tame your finances. Luckily, there are multiple ways to budget.
There are budgeting tips for those with irregular freelancing income. There’s the Japanese Kakeibo Savings method that promises a 35% savings rate. There is no right or wrong way. Just find a budgeting technique that makes sense with your current state, and follow it.
Finally! You got a raise! Better buy everything you like and charge your card to installment bonanza.
This is the fastest way to incur debt and never get out of the cycle. Yes, your neighbors have nice cars and that 3M PHP 100-inch TV. But do you absolutely need those to be happy? For a few days maybe, but afterward, you will just go back in the Hedonic Treadmill.
Keeping up with the Joneses will cost you. You can upgrade your lifestyle but not to the point of maxing out everything, especially at the expense of your bigger goals.
Check your budget. Can you afford it? If yes, do you really want it? Will it make you happier in the long run? Only you can answer this question.
You Don’t Save Now Because You Are Waiting for your Finances to Get Better in the Future
Well, your optimism is admirable but I don’t think it works that way. You don’t know what may happen in the future. It can be likely also that your finances will be far worse. And look at those who forego saving because it was too early and the situation not so ideal, did they get to save in the long run?
Most did not get to and regretted. You don’t want this possible outcome. As much as possible incorporate a percentage amount of savings in your budget. And when better finances come, you can increase the percentage to your desired number you wanted ideally.
No Emergency Fund
Speaking of uncertainty, there may be times in our lives where accidents happen. It might as small as maintenance thing at home. Or a dreaded sickness in the family that costs so much.
Life might quite unfair because you just fixed your finances. And suddenly a big-ticket expense blows up in your face. In this case, everyone should have an emergency fund. Your credit card is your last resort because you don’t want an emergency to trap you in the debt cycle again.
The rule of thumb is 3 to 6 months emergency fund separated for this. If you currently have so much debt, a month’s worth of emergency fund is recommended. This will allow you to be secured for one month and not rely on your credit card just in case.
Habitually Paying Unnecessary Fees Like Bank Fees and Late Charges
The line is so long. Can I just pay my credit card tomorrow? And that tomorrow becomes a week and another week. Before you know it, you’re already past the due date.
I mean 3% interest wouldn’t hurt that much, right? Well, it depends. Imagine buying a toothbrush set for $10 and fail to pay them on time for the next consecutive 12-months. Guess what, you paid an extra 36% for that single purchase. Not to mention, some cards charge additional percentages on top of the finance charge. If you like a sale, consider avoiding this as a bargain on its own.
Another thing is bank fees. Check your ATM for extra charges such as withdrawals from other ATMs or max withdrawals per month because this might be a small amount, but it can compound big enough that will warrant a scratch on your head.
Putting Everyone Else First
I know. You need to help your family and friends. But it doesn’t mean that you should compromise your financial wellbeing for everyone in your clan. You are just one person. And you need to watch out for yourself. I don’t think you should be concerned that much with all the expenses of your extended family.
I’m not saying you don’t help them. I’m just saying that if you are finished with your own obligations. And you have secured your own emergency fund and contribution to your retirement fund, that’s the time you should assist them with their financials. Put the future of your own family first.
Trying to Fix Everything All at Once
All these are good tips. So you set up all your accounts. Invested some of your money. Separated an emergency fund. But the problem is, nothing is left for you to spend for your necessities. So you end up using your emergency fund and savings to feed you and your family.
And goes into a cycle. You can’t really save anymore. Kudos to you for stepping up. But you need to tone down a little. You don’t need to fix everything all at once.
It might be annoying for the OC but you should just separate amounts you can afford to save first. Even though it’s slower, it surely is more progress than going back and forth.
So with that, let us avoid this money mistakes and achieve our financial goals for here on out. Good luck!