Sunday, October 30, 2016
The Mistakes You're Making Right Now That Get You Financial Trouble
When it comes to money, there are a lot of people with a very black and white notion of what makes them financially healthy. If they have enough money to keep paying the bills and keep eating and maybe have a holiday every year, they’re fine. But no, they may very well not be. True financial health is about measuring the opportunities you have, your ability to cope with risk and what you get out of your various dealings. If you’re making the mistakes below, you need to stop before they come back to haunt you.
Not having a budget
True financial health comes with understanding. The first thing you have to start understanding is where your money is going and what it’s doing on a regular basis. A budget isn’t just about cutting down your spending. It’s not about limiting your lifestyle. It’s about seeing you make smarter use of your money. Your budget helps you separate essential bills, non-essential bills, and other expenditures. It also helps you find the room in your money to start building your wealth properly. It doesn’t eliminate spending money on life’s luxuries. It just makes sure you stay in the limits by allocating you spending money without infringing on your other considerations.
Not understanding your net worth
On the much larger scale, you need to figure out the entirety of what you’re worth. Your net worth begins by having as many of your assets value as you can. If you have a home and a car, these are two assets that are going to make up most of your physical wealth. You may very well have other possessions that contribute to that, too. Then your non-tangible wealth needs to be accounted for, too. Bank accounts, IRAs, investments and the like should all be included. Against them, you count any money you owe. Loans, debts and such. Subtract the money you owe from all your wealth. That’s your net worth and that’s how much money in the world you would have if you liquidized everything. The aim of the game, here, is to be well in plus numbers and being far away from the minus.
Not preparing for retirement
It doesn’t matter what age you are. You should be preparing for retirement as soon as you’re able to start putting money together. This is part of what setting a budget is going to help you accomplish. It’s going to help you find some money to start putting towards your future. Even in your 20s and 30s, there’s a lot you can do to make your retirement easier on you. Take advantage of any 401(k) offers your employer makes to you. If they match your contributions, try to get as much of a match as they can offer. The sooner you start saving for retirement, the easier it is to contribute in later life as well.
Using your credit incorrectly
It’s a common flaw amongst younger people in particular. Some people just don’t understand fully how credit works. They’ll dip deep into it for no reason other than to fund purchases they want. Big dips into your credit should be used for investment purposes only. They should definitely not be used as an emergency fund. Nor should you think of credit cards like a bank account. You don’t know what will happen to your income next week or next month. Use the credit card only when it’s convenient to pay it off. Otherwise, you run the risk of falling into serious debt and tanking your credit score.
Skipping the fine print on loans
When you take loans, make sure you understand everything about them. There are a few in particular, you need to think twice about. By releasing equity from your home, you need to understand you run the risk of losing it if things go wrong. If a loan doesn’t take your credit score into account, then it’s likely going to cost more in the long run. Similarly, if someone claims to be interest-free, they could be hiding the truth from you. There’s no doubt that things like interest-free 30 day title loans exist. But there are some that have requirements so difficult to meet to qualify for that no interest that you end up paying a lot more than you bargained for. Always read the fine print when it comes to loans.
Neglecting to prepare for emergencies
As we stated, credit cards and overdrafts are no replacement for an emergency fund. They won’t help you if you, for instance, lose your job. Instead, you will end up getting deeper into debt. An emergency fund is there for that exact reason. Similarly, you should insurance set up on the most valuable of your assets. You might even want to set up insurance to protect your income. Similarly, it’s never too early to start putting life insurance together. You need to have provisions for all kinds of situations. From what happens if you’re injured and unable to work to what you’re doing to do if you get into a car accident.
Sticking to one growth strategy
As well as buffeting yourself from the risks that can impact your finances, you can improve your chances of making gains as well. Your budget can also help you find space to start building your wealth. But it’s not going to work as well if you’re using a diversity of strategies to do so. For example, it’s not enough to just save. It’s a good way of keeping your money safe, but you might find that even inflation can outpace your growth. Instead, you should be investing alongside your savings. But you need to diversify those investments, too, so you’re not putting all your eggs in one basket.
Hopefully, the tips above will help you spot some of the steps you’re taking wrong or were at risk of taking wrong. Start taking steps to do those important financial tasks you’re not doing right now. Your future self will thank you for it.