Unfortunately, proper money management is a skill that evades far too many people. Without staying on top of your finances, you can end up spiraling into debt and all the other associated problems that come along with this. So, in the following blog post, we are going to look at some of the money management mistakes that people make in an effort to stop you from repeating them yourself.
Mistake One: Spending More Than You Earn
If you spend more than you earn, you are obviously going to find yourself falling into the red. Living within your means is a financial habit that is always going to be worthwhile. A big part of the reason why people spend more than they earn is that they are constantly trying to keep up with their peers. Instead, you are better off focusing on yourself and what makes you happy, rather than trying to keep up with the Joneses. A frugal lifestyle may not be fashionable, but it is one that bears plenty of fruit in the long run. This doesn’t mean that you have to be cheap. It simply means that you spend your money in the areas that are going to be most beneficial and satisfying in your life.
Mistake Two: Not Keeping a Record of Your Spending
Another common trap that people fall into is not keeping a proper record of their spending. By simply writing down the facts, you can get a clearer idea of where your money is going every month. You can either do this the old-fashioned way with a spreadsheet or even a pen and paper. Otherwise, you could always use an app to track your spending. Many younger people are using this system, and once you get into a habit, it is easier for this to continue long into the future.
Mistake Three: No Money Goals
People tend to do better when they have clear goals that they work towards. Unfortunately, far too many of us do not have monetary goals, which means that you can be somewhat directionless. When you are setting a goal, you need it to be both measurable and achievable. For example, you may want to have a certain amount saved by a particular date. If you have something clear that you want to buy, this can make you even more determined. For example, you may want to get together the money for a deposit on a property. For more serious money goals, you can always look at Morgan Stanley wealth advisor reviews.
Mistake Four: Not Having an Emergency Fund
While everything may be going perfectly smoothly with regards to your financial situation, if you don’t have an emergency fund, it is all too easy for the rug to be pulled out from underneath your feet. When you have excess funds, you should channel them into a separate account. Ideally, you should look to get together somewhere between three- and six-months’ worth of living expenses. This way, if you experience a sudden financial emergency such as losing your job, you are prepared to deal with it effectively.
Mistake Five: Avoiding Financial Problems
A common reaction that people have when it comes to financial difficulties is that they bury their heads in the sand. However, avoiding financial problems only makes them worse, so you are better off dealing with them head-on. A common issue that people have is that they are unwilling to discuss their financial situation. This doesn’t mean that you have to shout it from the rooftops but learning to speak to your nearest and dearest can prove to be a skill that is invaluable.
Mistake Six: Accumulating Too Much Debt
While debt can be a necessary part of moving through your financial life – mortgages and student loans for example – too much debt can be a huge issue. One of the main reasons why people accumulate debt is that they try to live a lifestyle that is beyond their means. Credit cards can be a useful tool if wielded properly, but if you acquire too many of them and regularly don’t make the minimum payment, they can drag you down into further financial instability. Ideally, you should pay off your credit card debts in full every month.
Mistake Seven: Impulse Buying
A major problem with our society is that it has been set up to encourage impulse spending. We are continually bombarded with marketing messages and shops are structured in a way to encourage you to buy without thinking. Impulse buying is rarely a good idea, and you are likely to end up with products that you didn’t really want or need. Instead, you are much better off taking your time when you feel the need to impulse buy. Sleep on it. If you find that you still want the product, you always have the opportunity of buying it further down the line – and you may find that you are able to get a better deal somewhere down the line.
Mistake Eight: Continually Upgrading Your Lifestyle
While it can be tempting to upgrade your lifestyle whenever you get a pay rise, don’t do this simply because you can. Instead, you are better off channeling that extra money you are making into an investment or simply saving it. There is no point in spending money for the sake of it. As we mentioned earlier on, a big problem occurs when people try to keep up with their friends and neighbors. Ultimately, you don’t know their precise financial situation, and there is no point in stretching yourself too far when you don’t have to.
These eight mistakes represent some of the most common traps that people fall into with regards to their money management. By avoiding these pitfalls, you can get yourself in a much better situation now and in the future. Ultimately, good habits that are established early are more likely to carry with you for years to come. When you learn good money management skills, it is worth passing them onto the world around you in order to create a more financially stable world.