Common Financial Mistakes That You Need to Avoid
Whether you have a more than healthy financial situation or living paycheck to paycheck, some financial mistakes are difficult to avoid and it’s important to recognize them. There are hidden fees that you may not know about that you’re paying, budgeting errors, and poor communication and it could cause you to throw your money away. Here are some of them.
Unnecessary Risks that Women Take
One of the factors that could compromise your finances are fees. Even if you follow the fundamentals in keeping your finances healthy, if you are paying fees that are out of control, you risk losing a significant amount of the money you would have saved over time. The basic rule is to keep fees low. It is unavoidable to pay some fees because that is the cost of doing business but you do not earn more money by paying higher fees. In most cases, you will end up with less. So, take a look at the fees you are paying for the different services you use including financial services like actively managed funds. They charge higher fees than index funds and they do not end up doing well in the long run. Always look for the cheaper option and more straightforward.
Fees can also hide in a lot of places so you need to be aware of them and make sure you’re not being charged for more than what you need.
Another financial mistake is falling for money myths that could hurt your savings. One of these myths is that only rich people invest. Investing is not just for the 1%. If an ordinary person commits to invest 5 dollars a day which is usually the cost of a large coffee, you could have upwards of $85,000 in 25 years according to an index fund that tracks the market if there is a 5% rate of return.
52% of Americans do not own stocks or have stock-based investments. The number one reason they give is that they do not have the money. You can use apps like Acorns which automatically invests for you. You can connect a credit or debit card and a checking account. If you make a transaction, it rounds up a charge to the nearest dollar and invests the change for you. The investment will be in a stock portfolio that is suitable for your age and risk tolerance.
Another myth is that people will save more once they make more money. The truth is that the more you earn, the more money you spend because your expenses increase as well. You can try to automatically direct a small part of your paycheck to a savings account. Start small then work your way up to 10% of your income.
Financial Mistakes People Make in Their 30s
People in their 30s also commit a lot of common financial mistakes. At this age, people should be firmly establishing their careers and breaking out their own ways to become millionaires. They could also be building a life with a partner and planning for the long-term future. However, it’s also a period where people fall into major money mistakes that could affect their finances negatively for years to come.
One of these mistakes is carrying too much credit card debt. It can be an easy solution when you just need a little extra help to get to the next paycheck. You can also use your credit card to establish credit score and earn points that you can use for online purchases. However, credit card companies make money out of your financial mistakes which include impulse buying and purchasing items that you don’t really need. If you only pay the minimum payment required per month, you would end up paying more.
There is also the financial mistake of not diversifying income. You should aim to make something on the side. Diversifying your income gives you a backup in case something happens. You could lose your primary job. So, it’s better to broaden your interests and explore other different areas. There are ways to build a second career or other business ventures on the side. If you have more than one source of income, you would have more money to invest.