Financial stability is a battle that many of us are struggling to win, by all means, this battle can't be won without proper money discipline. Have ever found yourself scratching your head trying to figure out how you have spent your salary? Some individuals get their salary at the end of the month and by date five they are usually broke! Have you ever asked yourself why? I have the answer for you; it's because of poor money management skills. In this article, I'm going to give in detail the worst money management mistakes you should avoid.
1. Not Having a Budget
Not having a budget is probably one of the surest ways of running into financial distress. Without a budget, one is most likely to be unprepared for surprises. If you have no idea how much you spend every month, it will be difficult to create realistic savings and investment goals. Not having a budget can also lead to impulse buying, further creating a dent in your finances. Even worse, you might end up in debt.
Draw up a budget and purpose to stick to it. Your budget will depend on your income, and total expenditure. Tracking your expenses and keeping a record will give you a true picture of what your monthly expenses look like. Also, make sure you budget to zero before the month begins - this includes everything from your contribution to your emergency fund to leisure.
2. Spending on stuff you don't need
Failure to distinguish wants from needs can lead one to spend on unnecessary items, e.g. expensive clothes that you only wear once a year. The pressure to keep up with peers or societal expectations of what you should possess at what point in life, where you should live etc. contributes to many unplanned spending decisions.
For instance, the fact that most in your circle of friends already have cars may influence you towards buying one even if you may not necessarily need it. Worse, you may end up making purchases, moving to an expensive house just to match those standards when you actually cannot afford to do so. The result is almost always getting into debt - debt that you didn’t need in the first place.
Start by truly understanding your wants and needs. Make a list of each and evaluate their usefulness and also potential future dividends you can reap from them. You want to prioritise your needs in your budgeting before figuring out if you can afford a want and further if you could put that money to better use.
3. Not tracking your Spending
To have a successful budget, one needs to track where the money goes, and what it buys each month. If you're not tracking your spending, even the very small purchases you make, you could easily be overrunning your budget unknowingly.
Tracking your expenses will give you a clear picture of where your money is going. Thereafter, you can make adjustments where need be. Your budget is as good as your expenditure tracking ability. You could simply get started on tracking your expenditure on pen and paper - studies show that handwriting engages the mind more than typing on a computer. You have some extra mental presence as you plan out your money goals.
4. Maintaining your spending habits when your income has gone down
Many people tend to try not to lower their spending and adjust their budget accordingly, after their income has been reduced For instance, after salary cuts experienced in the wake of the COVID-19 pandemic. Premium subscriptions and memberships or some leisure activities may need to pause until you can increase your income. If you are dealing with reduced income, avoid feeling broke by making significant changes sooner rather than later.
5. Not setting goals
If you do not set specific goals, it won't be easy to attain financial freedom. This is because these goals give you steps to work towards. These should be the reason you wake up every day and put in the hard work at whatever you do, so they should challenge and motivate you. Make a list of goals you want to achieve. This could be either short term or long term. In turn, it will help you stay focused on financing the goal.
Take time to set solid financial goals and pair them with a tracking plan with milestones that help you visualise progress. Remember, you can review, adjust them as you wish.
5. Ignoring higher income opportunities
Always be on the lookout for possibilities of making more money. Making more money means you can stay away from debt and move you closer to the financial goals you have set for yourself. If you can bargain for better pay at work, do it. Also, if you can manage a side hustle after work, give it a try. It is generally a good idea to have more than one revenue stream.
6. Borrowing money
Borrowing money, especially when you have no guarantee of paying back, can dent good relationships between family and friends. Unless it is an emergency or what you lack is a need, stay away from borrowing. Try as much as possible to stay within your budget, and try to look for alternative means of earning more money. If you must borrow, take some time to get the best deal from the lenders available to you
7. Not having an emergency fund
Not having an emergency fund means that anytime a financial emergency occurs, let us say a medical accident, or car breaking down, you cater for it straight from your pocket, or from your savings account. If none of these is enough, then you might find yourself going into debt. Set aside a different account for emergencies. Once you get paid, contribute religiously to this fund. It will grow bigger, with time, earning interest, and save you if a financial emergency occurs.
8. Not saving /or not investing
It is essential first to save money and then invest in the right places. These may include bonds, stocks, real estate, or even starting a business of your choice. Saving in a high yield account also means that your money grows even more over the years. However, if your expenses are higher than your income, then you will have nothing left to save and/or invest. Get your costs in control, so you spend less than you make and save the balance.
9. Letting payments pile up
If you let payments pile up, it only hurts in the long run. You will have too many bills to cater for, from a not-increasing pool of money, leading to too much pressure. Set up automatic payments to take off some pressure.
10. Ignoring Insurance
Not having the right insurance and in the right amount is always a huge financial risk. Because if a significant accident, whether health or property-related occurs it could cripple you financially. Nevertheless, remember not to over-insure. Insure only what you can't afford to lose. That means having enough insurance on big items such as your vehicles, homes, health insurance, and life insurance. Scout the markets for an insurance type that suits your needs.
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