08.11.2021

TECHNIQUES FOR SUCCESS: WHAT COMMON FINANCIAL MISTAKES COST US DEARLY

Do you spend more money than you earn? Poor budgeting in the long run is a sure formula for financial problems. Many people resort to loans and credit cards to offset their high costs.

As interest accrues, these debts become larger and more difficult to repay. Instead of borrowing, make saving a habit and take the time to develop a sound financial plan.

To avoid overspending, start monitoring the rapidly accumulating small costs, then move on to monitoring large expenditures. Always think carefully before adding new obligations to your payroll.

Keep in mind that being able to make a payment does not mean that you can afford the purchase. Once you learn which financial mistakes to avoid, your wallet will never be empty again.

Excessive and reckless spending

Even if you have a fortune, you can lose it lev by lev. Cappuccino on the way to work, dinner at a restaurant, a visit to the cinema, a spa weekend - if you spend a little, but often for your every desire, then at the end of the month you may run out of money. Of course, this does not mean depriving yourself of these small pleasures, but diluting them within reasonable limits. Especially if you are repaying a loan, every small amount saved is important.

Buying an expensive car

Millions of new cars are sold every year, although few buyers can afford to pay for them in cash. When you take out a car loan, you pay interest on a depreciating asset, which increases the difference between the value of the car and the price paid for it. Buying an old car is cheaper, but it can be a double-edged sword if the car has hidden problems and needs expensive repairs.

Hasty purchase of a home

Buying your own home is one of the most important financial decisions you will ever make. That's why it's crucial to know how much you can afford to spend on your new home. A mortgage loan is one of the biggest debts you can take on, and the decision to invest in a home should be made only when you have enough savings and you can pay your monthly installments easily.

Support for unnecessary subscriptions

Ask yourself if you really need all the subscriptions that gradually "eat" your money, month after month. Review all streaming services and discontinue those you don't use often. If you have a gym membership that you rarely visit, cut that cost as well. Consider carefully whether you use each service enough to be worth the cost. Switching to a minimalist lifestyle can significantly increase your savings and protect you from financial difficulties.

Life on loan

Using credit cards to buy basic necessities is now commonplace. But even if more and more people are willing to pay high interest rates on fuel, groceries and other items that are used long before the bill is paid in full, it is not a wise financial decision to do so. Interest rates on credit cards make the price of charged purchases more expensive. There is also the danger of being tempted to spend more than you earn.

Life from salary to salary

For families who live from paycheck to paycheck and have no savings, any unforeseen financial problem can easily turn into a disaster. The cumulative result of overspending puts people in a precarious position. If you need every penny you earn, even a missed salary would be disastrous. That's why it's good to have savings to live with for at least three months. This buffer amount can save you in the event of an economic recession.

Lack of emergency fund

In addition to a savings account in case of job loss, it is good to have a separate emergency fund. For example, if you need to replace a broken household appliance or unforeseen medical expenses. Such costs occur less frequently, but are usually urgent. When you do not have extra money set aside, you are forced to use unprofitable ways to finance your life, such as borrowing from relatives or taking out a loan.

Non-investment in old age

If you don't make your money work for you through a profitable investment (which you understand), you may never be able to stop working. Determine the time for which your investment should grow and what risk you can afford to take. Don't make reckless investments, but don't procrastinate too much, because the right time to invest is while you are still young and full of energy and ideas. Opening a pension account and monthly contributions to it are also essential to ensure a financially secure old age.

Lack of financial plan (budget)

One common mistake is to fail to build a financial plan or budget. Your financial plan is a guide to achieving your financial goals. It is about establishing an investment and savings strategy that will lead you to your goals. Your budget is the way you distribute your income each month. A good budget ensures that you take care of your needs and live within your means, as well as allocate funds to your desires, repay debts and invest in the future.

Big purchases without comparison

Many consumers are loyal to a brand and stick to the habit, even if there are much better deals on the market. Comparing the prices of similar goods and services can save you hundreds of levs a year. Another mistake is to start using more expensive goods and services as soon as you receive a salary increase or additional income. You better save this money and consider a suitable investment in the future.

Reconciliation with low salary

It is a mistake not to try to negotiate a better salary when starting a new job, as well as a salary increase at a later stage. Salary negotiations are essential for two reasons. First, you will receive enough money to cover your basic needs from the beginning. And second, negotiating a salary determines the tone of your relationship with your employer. By agreeing to an amount that is too low, you underestimate your job and encourage your employer to do the same.

Ignoring insurance

It is difficult to think about serious illnesses and life-threatening accidents, but the truth is that you must be prepared to protect yourself and your loved ones in such situations. Taking out life insurance will ensure financial security for your loved ones. It is a good idea to take out additional health insurance for you and your family members. So no unpleasant situation will boil you unprepared.

Giving and taking loans from relatives

One of the common financial traps you should avoid comes from having a "golden heart". Giving loans to friends, especially when you yourself live modestly, is a big mistake that can ruin any friendship. Many people have a habit of borrowing money from relatives for higher expenses to avoid interest on a loan. This usually also has a negative effect on personal relationships and causes conflicts. Therefore, it is best to avoid such loans and turn to official lenders.

Give up all entertainment

In life with a budget plan, there must be room for entertainment. Excluding entertainment from your budget can be a huge mistake, leading to demotivation and even depression. It is good to repay your loans as soon as possible, but you also need money that allows you to enjoy life. Therefore, when preparing your budget plan, make the column "fun" for all hobbies and activities that bring you joy. It is important to determine the monthly amount that gives you a balance between financial responsibility and a full life.

Neglect of family goals

When you share a household, it is natural to share your financial life with your partner. Sometimes, however, the topic of money is taboo or people simply forget to discuss it amid the hustle and bustle of everyday life. Without frequent conversations about goals and a budget to help you achieve those goals, costs can go awry and progress can slow down. If you discuss finances regularly, you will be able to identify potential budget problems before they ruin your dreams. Don't forget to save for family vacations as well as for your children's future education.