We are all prone to make financial mistakes. After all, nobody is perfect. However, that is not an excuse to be reckless with your decisions. You have to make sure that you will exert every effort possible to avoid making these mistakes. While all errors should not mean the end of the world, there are certain mistakes that you cannot afford to make.
If you remember in school when you were taught that for every action, there is an equal and opposite reaction. This also holds true for financial decisions you make in life because for every present action, there will be an equal reaction sometime in the future. This is really how life works and you need to factor this in when making money decisions.
The good news is that according to Consumerist.com, US consumers have adopted an optimistic mindset when it comes to their finances. This outlook is set on a financial backdrop where 1 out of three people has no savings for the future. It is certainly great to have such positive belief for the future but that will not be enough.
Financial mistakes that will cost you dearly in the future
Even Gallup.com confirms these findings stating that about half of Americans are feeling better about their financial situation. But you need to understand that this is not the answer when you are trying to stay away from making financial mistakes which will haunt you in the future. Here are a few of the things you might want to be on the lookout to help you avoid these situations.
- Sending in late payments. You have the financial responsibility to meet your monetary obligations on time. This can include recurring bills like your utility payments and even debt accounts such as your student loans, credit card bill and even mortgage payments. When you send in late payments for any of these, it reflects badly on your credit report. This, in turn, drops your score which makes it harder for you to access financial instruments in the future. This can be in the form of mortgage and even car loans where your score would dictate if you get approved or not and more importantly, what your interest rate will be. The higher your score, the less risky you are in the eyes of lenders and the lower your rate can be. If you keep on sending late payments, the lower your score will get and the higher your interest rate can be.
- Missing out on 401(k) employer matching program. A lot of people wish to retire early and enjoy life but the problem with most of them is that they do not have enough saved up which forces them to work longer than they want. One of the financial mistakes that you will regret in the future when you start taking into account your retirement fund is not taking advantage of employer matching program. This is similar to free money when you are saving up for retirement because your employer puts in additional funds to your 401(k) over time. You just have to be aware of your company’s vesting schedule to make sure that when the time comes you want to take up another job offer, you get to keep in your account whatever they matched.
- Not investing your money early. One concept you need to understand when it comes to investing money is compound interest. This is one powerful concept which you can use to make your money work for you and earn you some extra funds down the line. One perfect example of this is when you make late payments on your card and you get slapped with interest rates and fees. What happens is that on the next billing cycle, those fees get added onto your principal amount where interest is assessed. This makes the amount due bigger and your lender earns more money using compound interest to their advantage which is actually a financial mistake in itself. Making investments early on helps you take advantage of this tool for yourself making your money earn interest on interest.
- Thinking you have time to build up reserve funds tomorrow. One tip you can use when looking at the topic of reserve funds is to think that you will need it tomorrow. With that being said, you have to start saving up for it today. The sooner you get started, the faster you get to your target amount and the safer your finances are. The problem with most people is that they believe they still have enough time for it in the future. What you need to understand is that emergencies strike when you least expect it. As proof of this, Forbes.com shares that over 60% of Americans will have trouble getting through a $500-worth of emergency. You need to start saving for your emergency and rainy day fund as early as you can to offset any unexpected financial situations along the way. It is also important that you make the fund accessible meaning it should not take you days to dip into your reserves when you have emergencies.
- Budgeting on the fly. One of the most important thing in your adult life is having a household budget. This is one of those financial lapses that would have dire consequences when overlooked. You would have a hard time knowing if you still have enough funds to cover your expenses if you do not put together a budget at the onset. When you decide that you can manage your finances on the fly, then you are in for a hard landing.
- Overlooking skill improvement. Investments should not only always be about the money you put in stocks, business, and other tools. It can also refer to you as a professional and the need to improve, add or polish up some skills you have to help you improve yourself. This can be in the form of classes or taking up short courses to help you be a better version of yourself. It can even be as simple as going to the gym to take care of your health or even picking back up an old hobby to help you manage stress like photography or baking. The bottomline is that you also need to take care of yourself while you are young so you can reap the benefits as you get older.
How to prevent making these mistakes
If you are looking for ways to steer clear of the financial mistakes mentioned above, here are a few tips and reminders that you can look into when managing your finances.
- Educate yourself. You might have learned a thing or two on how you should handle your money when you were younger. But one financial misstep people make is relying on old information to make present decisions. You need to constantly update and improve your financial acumen to be able to make better decisions for you and your family. You can read books, look into the paper or simply talk to your bank to ask how investments work. The idea is to always learn something new to be ahead of the game.
- Work as a team. If you are married then this means you and your husband or wife but if you are still single, it can be your partner or even a financial adviser. When you get support and help from another person especially when you are both aligned with the financial objectives, it can help you reach your goals faster with less financial mistakes along the way.
- Constantly evaluate long-term goals. One major cause of financial stress among consumers is not realizing that they have not been on track to reach their long-term goals. You might have put in the work at the beginning but neglecting to check back on your goals and your plan to get to them can cause you dearly. Be sure to have a regular evaluation to verify if you are still headed to your goals or dangerously steering off-course.
There are a lot of financial mistakes that can commit at present that has a haunting effect that sticks with you down the line. Be sure to be aware of these things to be able to avoid them and put your finances in a better position in the future.