When you are starting out, you may make some less-than-stellar decisions regarding your finances.
But it's important to keep in mind that the choices you make today and the habits you form now can affect the rest of your financial life. Learn the 10 biggest mistakes you can make with your money, plus how to avoid them.
Getting Behind on Your Payments
When you fall behind on your house or car payments, you can create a cycle that is hard to break. You will end up paying late fees and other charges each time you fall behind. It may also damage your credit score, which can affect your finances in the future.
The first thing you need to do is catch up on your late payments and then address any spending, budgeting or income issues that have caused you to fall behind. Then work to stick to your budget so this doesn't happen. again.
Using Credit Cards for Everyday Expenses
When you use your credit cards to cover the shortfalls in your spending, you can run up a huge amount of debt in a really short period of time. Plus, studies have shown that people tend to spend more money when they are paying with credit.
It's also easier to stop paying close attention to your budget when you constantly fall back on your credit card. You need to stop using your credit cards and start following a budget to kick your credit card habit.
When you are in a tight financial situation, you may be tempted to borrow money from your friends or your family. When you do this, you put a strain on your relationship with them. They may begin to question your financial decisions and feel like they can make comments about your spending habits.
They may also need the money back suddenly or you may feel guilty whenever you see them. It's a good rule of thumb to avoid loaning money to family or friends or risk damaging the relationship.
Quit Your Job Without a Plan
When you quit your job, you do not qualify for unemployment insurance, and you may find yourself in a very tight financial situation. It is also more difficult to find a job when you are not currently employed.
When you feel that your current employment situation is not good, you should begin looking for a new job right away. This will allow you to find a new job and prevent any gaps in your employment experience.
You may even decide to take a pay cut for your new job, but you will be secure in knowing that you have a job and a paycheck coming in.
Staying at a Dead End Job
Another big financial mistake is choosing to stay at a dead-end job. This can hurt you financially because it does not give you room for advancement or to increase your earnings. While you may take a job as a stepping stone or because you are desperate for work, you do need to have a plan to move on to a better job.
You need to determine when the time is right to find a new job, as well as the skills that you will need to find a job better suited to your interests. Begin the process before you are ready to leave your job. That way you are prepared when the time comes.
When you do not have a budget, you do not have control of your finances. Failing to budget month after month means that you are not taking control of your financial situation.
Without a budget, you can make decent money and still struggle to get by. It can be difficult to reach your financial goals when you do not have a solid budget in place. Take the time now to set up a budget, and continue to do it every month.
You can begin to make better financial decisions if you are budgeting and you know exactly where your money is going each month.
Not Having a Financial Plan
When you do not have a financial plan, you will not move forward to reach your financial goals. Your financial plan can help you make sure your spending matches your priorities.
Not Setting Goals
Similar to a financial plan, your financial goals give you steps to work toward. These goals should be things like homeownership, starting your own business, retirement.
If you do not set specific goals, you will flounder. You may never get to the point where you have a down payment save for your home or be in a good position when it is time to retire. Take time to set solid financial goals and review them each year.
Going Without Insurance
Many people choose to go without insurance to save money. But this isn't a wise financial decision. That's because your car or health insurance is your safety net. It protects you in the event that you're in a major accident or have to deal with a serious health issue. In fact, one study found that 530,000 bankruptcies each year can be attributed to medical bills.
Make sure you have basic health insurance coverage, as well as car insurance. Keep in mind that many states require car insurance by law.
Making Financial Choices Out of Fear or Pressure
Another common mistake is to make a financial choice when you are afraid or you feel a lot of pressure to act right away. When you are afraid, you may not be considering all of the options, and you may end up making a costly mistake. It is important to take a step back and consider all of your options. You may also want to talk the decision over with someone you trust.
Another financial mistake is to give in to pressure to take a big financial step, like buying a new car to purchasing a home to getting married or having a child. You may not be ready for these steps and giving into pressure will not benefit you financially.
It is OK to make each financial decision based on your own timing, goals, and needs.