It’s easy to make financial mistakes; but if you are worried about your money, it is very important to pay attention to the things that might go wrong with your finances.
Financial mistakes can be costly. At some point, it can be more difficult to get things back to the right position.
The following are some of the common financial mistakes to avoid.
1. Not having a financial plan.
Many young people always fail to build a financial plan or a budget in their lifetime.
Schwab did a survey where they asked people how confident they were about reaching their financial goals.
Over half of the respondents who had a financial plan said they feel very confident about reaching their financial goals compared to only 18% of those without a financial plan.
The most interesting part is that those with a written plan had a healthier money habit.
Financial Planner usually refers to a financial plan as a road map to accomplish your financial goals.
Your ideal financial plan should at least cover all aspects of your financial life. This can include things like your expenses, savings, investing, retirement, insurance etc.
2. Subscriptions/ Recurring payments.
These are the products or services that keep you paying every month or year.
Never ending payments can force you to pay continuous bills leaving you owning nothing. Most of these services or products are not basic needs, one can comfortably live without them.
Things like Cable Tv, Premium Apps or Websites, Movies/Music Streaming Services, high-end Gym, or Club memberships.
Living a simple lifestyle can help you spare some coins for investing or building your savings which can act as a safety net during a financial crisis.
3. Living life on borrowed money
Many young people are dangerously living in debt making credit their source of livelihood.
Majority of the young people borrow on impulse since the loans are readily available, thanks to the penetration of smartphones in most households.
A recent report by the international association for mobile network operators GSMA shows that 36% of Kenyans acquired loans through their phones in 2021.
These loans usually put pressure on your finances. Most of these loans that young people go for are very expensive. Interest rates are high, some even go as high as 43%.
Putting into consideration the high fees and interest rates, these are money that you could better utilize elsewhere.
So, it’s very important to Make sure that you have a plan in place, and you are living within your means to avoid getting yourself into debt trap.
4. Spending too much on housing
“House poor” is a common expression used to describe people who are wasting too much money on housing.
If your rent constitutes more than 30% of your monthly income, it’s time to rethink your living situation.
As a general rule of thumb, your housing costs should never be more than 30% of your take home pay.
Spending too much on housing is as good as setting yourself up for financial struggles. This will stretch your financial muscles leaving you with too little to spend on everything else.
If you are renting a home and you realize that you are struggling, the best bet is to move to a neighborhood that is more affordable.
The reason why it’s very important to keep your rent low is to ensure that you have enough money left over for things like food, transportation, healthcare, savings and investing.
5. Not saving in retirement
We all know we should save for retirement.
Not having a retirement plan in place to provide you with a decent income after you retire is a financial mistake that could leave you struggling to make ends meet once you stop work.
The best way to meet your long-term financial goals is with a smart financial plan that takes advantage of Retirement saving.
Not everyone has access to an employer-sponsored retirement plan.
One can go for a personal pension plan offered by various financial and Insurance institutions. Also, you can invest in mutual funds, long term stocks or ETFs.
By making contributions to your retirement fund, you are assured that you will be able to live the retirement you have thought about.
To ensure you have a financially secure retirement, it’s wise to create a plan early in life. The sooner you start contributing, the sooner your money can start accumulating.
Everyone dreams of the day they can live financially free. But doing so takes time and sacrifice. That’s where financial discipline comes into play. And it doesn’t matter at which point you are in your financial life.
Every so often a financial mistake is bigger than a quick fix, and that’s okay too. The most important thing in these instances is accepting what has happened and moving forward, rather than beating yourself up over it.
The great thing about financial mistakes is that everyone makes them. The important thing is learning a lesson and trying to do better next time especially if you are used to a certain lifestyle.
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