Handling money is not easy. People often end up making costly financial mistakes in life.
Getting a stable income stream is hard enough. But if you don’t make some sensible financial decisions, all your hard work will end up offering less-than-stellar benefits in the long term.
Some mistakes are unavoidable in personal finance. Based on this, there are some habits and steps you can take to drastically improve your financial strength and resilience.
On the flip side, there are these mistakes you have to avoid at all costs.
Not saving up for an emergency fund
Accidents and setbacks can occur without any warning in life. If you don’t have an emergency fund, you will end up relying on costly loans that can make a serious dent in your future income.
This kind of behavior will also have an impact on your credit score.
According to most experts, the bare minimum you should have in your emergency fund is six months work of living expenses.
You can start by committing just $20 or $25 a week. Discipline and commitment are more important than putting aside large sums occasionally.
Not matching your employer on a 401(k)
To get the full benefit of a matching program on your 401(k), you need to put in the same amount as your employer each month.
You get lots of tax advantages with these employer-sponsored programs. If you don’t make the largest possible contribution, you are missing out on lucrative tax savings.
Employer-matched 401(k) is free money on the table, from an income tax perspective. Many young workers simply don’t make use of this benefit, which is incredibly sad.
Being a shopaholic
When people start getting more disposable income, their first instinct is to spend more money on fancy new things, which they don’t really need.
A far better option is to use that money to increase your savings, or even bring down your current debt level.
Spending excessively on consumer goods is never a good idea.
They may give you that feeling of immediate gratification, but that happiness is fleeting. Financial stability offers lower stress and a superior quality of life in the long run.
Paying off loans with low-interest rates
If you have a student loan or card debt, those should be the ones that you prioritize in your debt strategy.
Paying off high-interest debt can drastically improve your credit rating. Sometimes, it is even worth sacrificing your savings goals for the short term to pay off these loans.
The worst mistake you can make is giving priority to home mortgages. These typically come with interest rates that hover around 3%.
In the grand scheme of things, they are not as important as car loans, card debt, or student loans.
Not remaining alert to frauds and scams
Identity theft and credit card fraud are becoming more rampant with each passing year. With malicious virus programs, illegal hacks and data leaks, scammers have more ways to get access to your financial data.
We can’t keep a constant eye on all our spending and credit activity.
It’s vital to upgrade your cyber security process and stay alert to any dubious calls, emails, or text messages that may be an entrapment to scam you.
You may also hire a third-party credit monitoring service, which can alert you if anything shady happens to your spending patterns or personal data.
