One of the things that you need to have a clear understanding of are your finances and as you do this, you need to keep an eye out on financial mistakes. This is not the kind of mistakes that you commit when teaching finances to your kids. The ones that you need to look out for are the ones that you are making yourselves.
There are mistakes that might seem like a big deal at the onset but you later find out that it affects your finances so much and at some extent, even that of your family both your spouse and kids. People might classify their debts as mistake and be quick to tell themselves that they shouldn’t have taken out a loan in the first place. But there are loan instruments that should not be considered financial mistakes.
Take your mortgage loan for example because this usually takes up the biggest amount in payments every month. If it wasn’t for the mortgage loan, you wouldn’t have a house to stay in, bedrooms for your children, that lovely kitchen and backyard and even that living room where you create lasting memories with the whole family.
Another one would be those student loans that a lot of people are talking about because of the sheer size and upward trajectory of the increase in debt year on year. It seems that college graduates seems to graduate outdoing the last batch of graduates with an even higher student loan debt average per borrower. But that student loan allowed you to get a nice job and a nice pay that helps you pay for everything you are enjoying at that moment. Is it still a financial mistake?
Creditcards.com shares that an average American consumer carries a credit card balance that is around $8,000. This is a big amount but does the amount automatically relegate this debt as a money mistake? All these can be good or bad decisions based on the reason for taking them as well as the manner of your payment. If you do not pay and default on your mortgage or student loans, that was a big financial blunder. If that credit card debt was used to save a family member with a medical procedure then that can be a good financial decision.
Financial blunders you should look out for
But there are money blunders that are arguably just wrong decisions from the get go. Regardless of what your reasons are, these are recipes for disasters. Here are some of them.
- Making a will to leave behind. Think of your will as an obligation to your family and other people that matter in your lives. Just as important as making a will is updating your will. You might have made one while you were still single but time has passed and you have gotten married and had kids of your own but you never updated your will. When you pass away, your family might not get anything and your assets will be given to your parents. Make your will and be sure to update or at the very least review it every year to make it relevant in your life.
- Increasing lifestyle with income. One of the most important don’ts when you get an increase in income is lifestyle inflation. You do not have to increase your lifestyle just because you have more money now than before. It is better to increase the amount that you are setting aside for the future rather than use all those amount today. If possible, try to live under your budget and see the difference it can make in your budget.
- Darting from tax payments. In whatever book and in any point of view, this should never happen to you and your finances. Whatever your view is of the government, you are still a citizen and it is your basic responsibility to pay your taxes. The government uses these funds to make sure that they are able to deliver services needed by the people. They also have a lot of ways and their collection procedures when it comes to taxes is something you do not want to experience.
- Foregoing a prenup when getting married. A lot of people shy away from having a pre-nuptial agreement because they feel that it belittles the their partner. But Businessinsider.com explains the honest and upfront communication is the real benefit of having a prenup. It is not only to protect the assets that partners bring into marriage but it also protects the other one from financial mistakes the other make. If you failed to sign a prenup, there is a post-nuptial agreement that you and your spouse can look into to get your finances straight.
- Trusting other people too much with money management. One of the most common denominator between people especially those that are well-off and does not have much time managing their finances is that they tend to hire others to manage their money. The sad reality is that there are some, not all who mismanage or worse, steal from their clients. It is not a bad idea but you need to make sure that you are involved in the process and you know what is happening to your money and not just give them your hard-earned cash and expect them to grow it over time.
Recovering from money mistakes
Nerdwallet.com shares that the consumers are currently tackling $11.86 trillion in debt consisting mainly of mortgage loans, auto and credit card debt as well as student loans. If you find that the payments are too much to take and it is causing stress on your life, here are a few things you can look into.
- Revisit your budget. The first thing you need to do is to look at your budget and see if there are ways to increase your income and/or lower down your expenses. Either of the two or combining them will help your budget breathe a little to help you make those debt payments.
- Build up your reserve funds. Dealing with financial challenges is a lot easier when you have adequate reserve funds in your arsenal. This means that your emergency fund as well as your rainy day fund must be able to cover unexpected financial emergencies to help you get through tough times.
- Get back on track with your retirement fund. Try to put as much as you can in your retirement fund to help you retire when you want to not when you need to. One technique that some people use is to consider the amount they put in their retirement fund as an expense. As soon as they make the contribution, they forget about it and just check on the amount after some time.
- Get current or pay off bills. When you are having problems in meeting your debt payments, missing out on other bills will not help your situation. Try to make minimum payments on your card just to keep it current and meet the payments on other utilities because the fees and charges will only add to the amount that you need to pay and hurt your budgeting efforts in the long run.
Financial mistakes will happen but you need to keep a close eye out on those that are preventable to help lessen your exposure to risk. It is also important to make informed money decisions and not guess what your next financial move will be.