Financial planning is an important aspect of life; even then, not many take it seriously. From investing to savings, here are some mistakes you need to avoid.
Ever had remorse for buying an expensive pair of Jeans? Financial mistakes can go well beyond that and usually it’s not much fun. However, the best thing with such mistakes is to use them as a lesson to benefit from.
Below mentioned are some common mistakes people make when handling their finances that could hurt them in the long run.
1. Not building an emergency fund
No matter how good your health is or how stable your job is, nobody is immune to emergencies. Moreover, you never know for how long you might be stuck in that stressful situation. There’s nothing that can disrupt your savings faster than an emergency. You think you are doing well, and boom! Your refrigerator stops working all of a sudden and you are in a crisis mode.
Nothing is permanent in life and emergencies may occur. With an uncertain economy with uncertain time, unemployment can happen anytime and usually this happens at the worst possible moment. An emergency fund would act like insurance to sudden financial setbacks.
Tip: An emergency fund differentiates people who manage to stay afloat from the ones who are sinking financially. Have an emergency fund to cover 3 to 6 months of your expenses.
2. Not having a budget
It may not sound exciting enough, staying on budget can even be harder, but budgeting is a sure shot way to manage your finances.
If you don’t keep a track of your finances, it would be hard to determine how much you can spend on things like upgrading to new mobile or nights out. Budgeting helps you take better control of your finances and help avoid overspending. Budgeting is simple: Income minus your expenses.
If you are not focusing on your budget things, there could be a problematic situation.
Tip: Not setting up any budget could be one of the biggest mistakes one can commit in business. It is a must to have your budget expectation set right from the beginning.
3. Neglecting cash flow
Understanding cash flow is a fundamental baby step, yet people delightedly ignore it, especially who make more money. The more money you make the more you are ignorant to cash flow. So, increasing income doesn’t necessarily mean that your wealth is increasing too.
Cash flow is the way your money moves through your household economy. It’s not only important to know where your money goes, but is also important to understand where it comes from and when it arrives. This involves timing as well as the amount.
Controlling cash flow is the single most financially responsible thing one can do. Yes, it is that important. Cash flow would help you accomplish everything in life –provided that you treat it right.
Tip: Financial success is not possible unless you have the lifeblood under your control – Cash. Neglect cash flow and taste the pain that comes along with it.
4. Spending more than they earn
Sounds simple! Doesn’t it? Yet this remains one of the common mistakes made by many.
Sometimes we spend because it makes us feel happy (temporary, at least). But, a combination of money with emotions is toxic. Don’t go to shopping just to change your mood.
Spending more than you earn would mean you will never be able to save money. Loan or credit card can make you happy but they won’t always solve your problems. Your hole-digging spending habits would catch up with you sooner or later.
Know when you’re about to spend money with your emotions. Do anything – go for a walk or read, just don’t head for a mall.
Tip: Long-term fulfillment of saving far outweighs the momentary satisfaction of retail therapy.
5. Getting hung up on small things
Yes, it’s essential to plug money leaks. But don’t get caught up with small stuff and ignoring the bigger ones. In some cases when consumers get serious about their budgets, they decide to cut off even their small expenses. While it’s true that saving on things that doesn’t matter to you could help keep your spending under control. But, cutting back may not be the only solution.
You can save $100 in a month by saving on Latte. But you are missing out on saving $400 on refinancing your home.
Tip: Keep little things from taking over your life.
Wrapping it up
Sometimes it takes a lifetime to build significant wealth, but is much easier to lose it. It may not necessarily be a bad decision but a combination of good intent followed by bad execution making it impossible to recover. It’s not possible to be perfect all the time but you can easily avoid making these mistakes and save time and money. Think of ways to say no, whether to yourself or someone in your family. You will have your future thanking for it.
Renuka Rana, Editor at Ace Cloud Hosting