Finance, Loans & Insurance
11 Life Mistakes That Can Impair Your Financial Stability
Why do you work? It could be to attain personal development, to fulfill one’s sense of purpose, or to exercise and showcase knowledge and skills. One can think of a myriad of profound answers to this seemingly basic question, but one thing is certain: you work to achieve financial goals and maintain stability.
Sadly, many Americans are still struggling despite working day in and day out. A study released by The Pew Charitable Trusts in 2015 showed that six in 10 households (60%) are unprepared for financial emergencies, and 55% of those who experienced a financial shock reported that the emergency expenses made it harder to make ends meet. We can blame the economy, at least partly. According to the Federal Reserve, household debt started to take a dramatic dip around the third quarter of 2008, and as a result of the Great Recession, savings rates rebounded, jobs were lost, and different forms of financial difficulties ensued.
However, even if we endlessly blame the economy, it still comes down to you: your spending habits, how you view money and its value, and how you manage your finances in general. You can only do so much to help the economy rise back up again, but you can do a lot to shape your own financial status.
We are indeed living in a material world and it’s very easy to be swayed off your financial plans and goals. But you don’t have to be a material girl, or guy. Here are 11 of the biggest financial mistakes you should avoid to finally start building stability.
- Living life to the fullest—literally
Living beyond your means and overspending are very easy to do, which is why it is a dangerous habit. No matter how great your fortune is, you can lose it dollar by dollar. Taking a detour at the drive-thru every morning, buying a whole pack of cigarettes, and eating out during breaks, to name a few, are just some of the activities that you may be regularly doing. You may not give them so much thought, but every little item eventually adds up and before you know it, you’re already struggling a few days before the next payday. Worse, as you run out of money, you may end up swiping your cards or getting a loan. Remember, when you find yourself able to spend beyond your income, you are not being extra lucky—you are actually getting into debt, perhaps without you noticing.
- Ignoring the importance of budgeting and tracking
According to the National Foundation for Credit Counseling, only 39% of adults follow a budget and keep track of their spending. It is very common for people to not develop a budget plan just because they think it’s a waste of time—you’ll be spending that money anyway, right?
What most people don’t understand is that budgeting allow you to create a spending plan, ensuring that you spend more for your needs than your wants. Without a budget, you are at risk of doing the other way around.
Furthermore, budgeting should always be combined with tracking. If you don’t know where your money goes, you will never know which expenses are unnecessary and need to be cut down.
- Spending borrowed money
NerdWallet’s 2015 American Household Credit Card Debt Study reported that an average US household has $15,762 worth of credit card debt. Meanwhile, the total credit card debt of US consumers reached a whooping $733 billion. Credit cards are not total evils—they can actually really help in times of dire need. Swiping your card for essentials such as groceries and gasoline has become somewhat normal, but they also pose unnecessary spending temptations (installment promos, for example).
Furthermore, once you fail to pay your dues on time, interests will start adding up until a cycle develops: you pay your credit card bills using your paycheck, you use your credit card to buy things and pay for services when you run out of cash, next bill arrives, and the cycle just repeats.
- Not saving and building emergency fund
One of the worst financial mistakes people can do is not setting aside a portion of their income for the future. According to BankRate.com, only 37% of Americans have enough to pay for a $500 to $1000 emergency. The other 63% will have to cut back spending on other areas, use their credit cards or borrow money.
Many people put off saving because they spend their money on other things that they think are more important, forgetting that savings should actually be considered as part of their monthly “expenses.” Meanwhile, those who fail to build an emergency fund early on commonly believe that emergencies only happen to other people and should an emergency happen, they can use their credit cards anyway.
When we say emergency, it isn’t always about health or accidents. It could be a car problem, an emergency trip, or even a lost wallet. Without an emergency fund, you will have to spend money meant for more important things and if you’re using your cards, you’ll just add debt to your name.
- Using savings to pay off debt
On the surface, this seems fine. After all, the interest rates on debts are typically higher than the income that savings accounts generate. However, withdrawing from your savings account is very easy—paying yourself back is often very difficult. Then again, what’s the best option, you ask.
If you think your debt is already uncontrollable and the interests are starting to equal the principal, you may want to consider financial products and services such as fast cash loan for debt consolidation. It is true that it’s just another form of debt, but it can help you settle high-interest bills, loans, and other obligations in one go, and roll the balances into a single payment, typically with a much lower interest rate. Furthermore, reputable payday loan companies can provide you with repayment terms that suit your monthly budget and paying capacity.
- Delaying investing until higher income comes
The benefits of investing have long been established but a lot of people still don’t get into the business. Many people, particularly the millennials, have a hard time trusting others and the economy itself. Meanwhile, some consider investing but doesn’t see it as a priority. Little do they know that when you make your money work for you, there will come a time when you can already afford to stop working.
- Ignoring other income opportunities
You may currently have a job that pays the bills and more, but given the status of today’s economy, nothing is ever certain. When a good opportunity comes knocking at your door, don’t be quick to shoo it away just because you’re already settled. Take time to carefully study its pros and cons, and if the advantages overshadow the risks, consider giving it a shot.
- Not considering insurance
Let’s face it: medical conditions and deaths can come unexpectedly. The point of having insurance is to be prepared for such predicaments. Unfortunately, there are still 33 million uninsured Americans as of 2014. If you are among those 33 million, you should start realigning your goals and get an insurance, especially if you have a family that largely depends on your income.
- Not planning for retirement
According to Pew Charitable Trusts, at least one in five Americans don’t have plans of retiring. However, no matter how much you love your profession and the idea of making a difference, there are things you just couldn’t control and you may be forced to retire for personal, health, and economic reasons. If this happens and you didn’t save enough for retirement when you had the chance, you will have no choice but to live on meager earnings, if there’s even any.
- Living from paycheck to paycheck
Basing spending decisions on monthly paycheck is a common mistake committed by many. You’re probably guilty of buying anything you wanted as long as your ATM and credit card balance allowed it. People end up living from paycheck to paycheck for a number of reasons, but it all boils down to your financial decisions. As founder of savings website MoneySavingMom.com Crystal Paine puts it, “Sometimes it’s not a money problem. It’s a self-discipline problem.”
- Not getting professional help
Financial freedom, particularly if you are under piles of debt, cannot be achieved overnight. Some do not have access to professional help, while some just ignore its importance entirely. Managing finances can be stressful but by understanding how it works and should work, the task can be made easier. By seeking professional assistance, you can learn how to best manage your money and stay on track toward financial goals.
Fixing financial mistakes require, first and foremost, the recognition and acceptance that you are actually making them. Secondly, you must be open and willing to change bad lifestyle and spending habits. Lastly, you should practice self-discipline and broaden your view about personal economics, and start making wise saving and investment decisions.