With countless articles on how to manage our finances, we should all be financial wizards rolling in spare cash. But who among us has not ever made a costly financial blunder? The truth is, managing money is hard work and even the most financially savvy slip up sometimes. So here are some money mistakes you can easily avoid.
Getting lured by spending traps
Everyone loves a good deal. That’s why it’s really tempting when stores offer zero-interest promotions and banks dangle credit cards with dazzling rewards in front of our noses. However, these seemingly ‘smart’ financial decisions only sound good in theory. Many people fail to consider the consequences of not being able to pay their expenses in time, which often results in an accumulated interest at a high rate plus compounding interest on the balance going forward. The result: the amount you end up paying far outweighs the few dollars you might have saved.
Buying a brand new car
There’s nothing like driving around in a shiny new car with seats that still smell of new leather. But is your new car really a good investment or are you just pouring money down the drain? The fact is, a typical brand new car loses about $17,000 of its value over its first two years, making it one of the fastest depreciating assets you might own. Worse yet, people often trade their cars in after just 2-3 years for a newer model despite them losing money on it. The smart thing to do would be to purchase a second-hand car. That way, you gain a relatively new vehicle without losing much money on it.
Not having an emergency fund
Nobody likes the unexpected, but that doesn’t mean you can’t prepare for it. Not having an emergency fund is one of the biggest money mistakes you can make. That’s because with no funds on hand to ride out a financial storm, you’ll be forced to dig into your savings or worse, your retirement assets. That’s why you should always maintain 6–12 months of your living expenses to tide you through any unforeseen circumstances. Keep in mind that your emergency fund is not the same as your savings.
Buying too much/too little insurance
An individual’s insurance portfolio is a necessary component of a financial plan. However, all too often, people shift from one extreme of not having enough coverage to the other, where they buy more insurance than they need. That’s why the best way to determine how much insurance you should get is to consult a certified financial planner, who will advise you on what you need and what you have too much of.
By avoiding these deadly financial mistakes, you’ll cut your losses and work your way to a better financial future.