Financial mistakes are becoming a norm nowadays. These mistakes may not be evident initially, but in a short period, they would have caused a long-term financial crisis. Everyone has a big dream of achieving ultimate financial freedom, but that can remain just a mere dream due to a small financial mistake.
This blog explains ten financial mistakes that pull you behind, ensuring you never achieve your financial goals. People who take these mistakes seriously and avoid them will notice positive progress in their financial freedom journey.
Most people make these financial mistakes in their 20s, and they live to regret it their entire life. See if you have made some of these mistakes and learn how you can hit reverse gear.
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The Biggest Financial Mistakes
1. Spending more than you earn
This is a big financial mistake enabled by borrowing from family, friends and the increasing number of mobile lending applications. These applications are meant to help an individual with a short-term need. It should not be just any need but a basic need.
Once you start borrowing money to finance your expensive outfits and trips, you will start to set foot in a deep debt pit. Remember, these expenses could wait until you have some spare cash. So once you finance them with a loan, you will spend beyond your means, which will take you to an endless debt pit.
Payday loans are a good example of short-term loans meant for catering to emergencies, but they are very expensive. these loans have an average interest of at least 392%. And most lenders charge more than that.
If you fail to pay by the end of the agreed period, that amount will be increased daily, weekly, or even monthly. Imagine getting all those rollovers for a loan you took to buy the newest clothes or shoes. Sounds weird, right?
To stop this mistake, start budgeting for every coin you earn and ensure you don’t spend more than you earn. You can follow the 50-30-20 budgeting rule to help you manage your money. in addition, create more income streams to help in financing luxuries.
2. Having no financial plan
Financial plans are meant to help individuals set priorities concerning their money. Everyone reading this has got some finances flowing in, whether from parents, children, or the major ones, salaries and wages. However, every coin has to be accountable, no matter how small the amount is.
The salaried individuals get their paycheck every month; some people have nothing by the 10th. This happens mostly when one has no financial plan and tends to live beyond their means.
Without a financial plan, one will have that short-term excitement of a paycheck. This excitement proceeds to impulse buying and partying. Without a financial plan, no one can make long-term financial decisions.
A good financial plan involves setting money goals to achieve in a specified period. These financial goals help you do big projects that help you increase your networth.
3. Staying behind / defaulting payments
Paying dues late is something that can happen to anyone. Understandably, not all the time money is available; there are always ups and downs in life. With that in mind, it should also be noted that staying behind on payments can land someone in a financial struggle.
Payment defaulters are short-term borrowers who take these loans with high-interest rates. Once they skip one payment, the interest pile up, making it impossible to pay those loans.
When debts pile up, the most likely step taken is defaulting. Unfortunately, defaulting payments will land you blocked from accessing other loans. The biggest disadvantage of defaulting payments is a bad credit score. You will always struggle with a bad credit score when getting loans from lenders. Alternatively, once you get a bad credit lender in the US, you’ll access a loan with very high-interest rates, which harms your financial freedom.
4. Taking a loan to finance luxuries
A good family house and a car are things in the Americans’ dreams. That’s why it’s not rare to get people who take huge loans to finance such schemes. This is a huge financial mistake as it is associated with a huge amount of money. Loans should at least be taken to finance projects that will generate profits.
For instance, a loan to finance a rental estate is far much better than building your own residential house. This is because a rental estate will start pumping in money as soon as it’s complete, while the personal house will never pump in any coin. This is not a campaign against you building homes. In fact, you should have private homes (s), but you should not build them with a loan.
A mortgage loan to build a home is good, but it can be a burden if you lose your main income stream. It will be clever to take a mortgage to build a commercial property that can pay the mortgage in return.
Alternatively, a simple home built with savings will be safer than a mortgage loan that renders you homeless if you no longer afford the installments.
5. Financial mistake of leaving a job without a plan
Jobs are literally made to be stepping stones for people who have major goals. For example, a job should open doors to more financial inlets like businesses and booming cryptocurrency investments.
People resign from their job posts every year. Some of these resignees leave to pursue their long-term financial freedom, while others leave without a plan ahead. The people who cannot control their egos are the ones who tend to leave without a plan. If your boss is so demanding, and you feel you cannot keep going, you should leave once you have a good plan. Leaving one job with the promise of getting another is a huge mistake because tables can turn anytime, and you end up jobless.
If you depend on your job alone, ensure you have set up other income-generating streams to help you earn money. For instance, you can start making money at home, but you should take the right courses to learn the skills.
6. Financial mistake of living without an insurance
Insurance is a form of risk management. It’s mainly a cover against a potential financial loss in the future. Everything is about taking risks; in fact, nothing big that doesn’t have a risk. Living without insurance coverage is a huge financial mistake. For example, when accidents occur, you’ll incur losses. But if you have insurance, it will help you recover your car.
Apart from protecting your property, you should also hold health insurance coverage. You have all seen or heard of large hospital bills due to strange diseases across the globe. Health insurance coverage can make the burden of the bill easier to carry.
7. Having no emergency funds kit
No one plans for emergencies to occur, and they can take you to the ground if you don’t have an emergency kit with you. You should always have some funds to help you when something happens to you. For instance, your car can break down in the middle of the month when you don’t have money. Without an emergency kit, you will take a short-term loan with high-interest rates.
An emergency funds kit can help you cater to unplanned expenses when you have no cash. Once you use your funds in this kit, ensure you refill it because you don’t know how the next emergency will be.
People without emergency funds usually fall victim to payday loan lenders who bombard them with costly loans. You should avoid this financial mistake if you want to experience money stress-free life.
8. Depending on one stream of income
A single income stream means you are one step away from poverty. Once anything happens to your income source, you’ll be forced to get short-term loans to cater to your basic needs. For instance, after Covid-19 hit the world, millions of individuals lost their jobs and businesses. Since then, everyone has struggled to survive because the economy has been extremely affected.
You can target to have at least an active income and several passive income sources. Your passive income should be strong to help you when you are not in your active job. You can try affiliate marketing, blogging, internet marketing, and cryptocurrency trading. These are income-generating ideas you can try while at home.
Here are other ideas to help you make money while at home.
9. Financial mistake of saving without a plan
It’s good to save money, but it’s a mistake to save money without a proper plan. Saving without a plan is dangerous since you’ll buy what comes to your mind because you have the money. Unnecessary sending can leave you in a bad place. This financial mistake can greatly impact your purchasing decisions, and in the end, you’ll have nothing to show for your saved money.
Before saving, you should list what you want to do with the money. You should also set clear targets to help you achieve your saving goals. Having something to do with your savings ensures you don’t do other things with your savings.
10. Financial mistake of living on borrowed money
Debts are secretly taking big people and businesses down. One thing about living with borrowed money is that you’ll never have peace of mind when it’s time to pay the debt. Mostly, people who take loans without a proper financial plan end up in endless debt pits.
Living on borrowed money can mess up your financial life for good if you are not careful. Always strive to live a debt-free life by creating several income streams and living within your income range.
When done carefully, borrowing can help you scale businesses and help you improve your networth. For instance, if you take a mortgage loan, the more you pay, your equity increases, and so is your networth.
However, to succeed with borrowing, you have to do the right thing with the money, and you’ll never regret it.
Frequently Asked Questions
- What is the biggest financial mistake that students make?
Students’ biggest financial mistake is taking short-term loans from mobile lenders. The bad thing is that most students take these loans to finance entertainment. These loans have high-interest rates, and the chances of repaying are low. as a result, they will end up with lousy credit scores, and as they grow up, they won’t get low-interest loans.
2. What are examples of financial problems?
Unable to pay your debts, unable to pay your bills on time, and living with borrowed money.
3. What’s the main cause of financial problems?
Spending more than you earn, having a single income stream, failing to pay debts, and living without insurance coverage.
4. What’s the solution to a financial crisis?
The perfect solution to a financial crisis is creating several income streams and learning to manage your money perfectly.
To Sum Up
The above ten financial mistakes can mess up your life if you don’t realise them early. You should account for every coin you spend to ensure you are not spending more than you earn. If you have to take a loan, ensure you plan carefully and you can repay the loan with your current income sources.
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