10 Mistakes that Affect Your Finances
Managing your finances in a healthy way means peace of mind. It also allows you to fulfill the needs that are close to your heart while living normally, without depriving yourself and without incurring excessive debt.
There are some good habits to adopt, but also some mistakes that can have a significant impact on your finances.
These are the mistakes that must be avoided at all costs.
#1: Living beyond your means
This is one of the most common mistake made by individuals having trouble making ends meet and are forced to use credit in order to finance their expenses.
Often, these people do not realize that they are living beyond their means. They often think that their money problems are due to the high cost of living or rising prices. Which is not the case.
E.g. Some people only buy branded clothing or shoes when they have difficulty paying regular expenses such as rent or bills.
To find out if you are making this mistake, simply analyze financial situation by:
- Making a budget
- Analyzing expenses
- Tracking purchasing behaviors to identify things that you spend more money on than you need to.
#2: Not tracking finances
Most individuals with financial problems do not track expenses. They have an impression that it is a waste of time and is useless anyway. However the fact is that, it is precisely the key to controlling your finances, especially when the situation is difficult.
Tracking finances makes it easier to analyze expenses and actually manage budget by having a more accurate view of money.
#3: Depending on credit
Credit is indeed a useful and practical way to finance large purchases such as home, education or a car.
However, relying too much on credit means entering a downward spiral from it is difficult to move out as time passes. For this reason, credit should be used only in case of absolute need.
For other things such as travel, work or home equipment, focus on saving and buy only when it is affordable.
#4: Not saving
This is still a fairly common mistake, since we often forget to save, when it is precisely savings that allows us not only to face the unexpected, but also to finance things without the need for credit.
To fix this mistake, simply start saving today!
#5: Offers with multiple payments
This type of very tempting offer is attractive, but utilizing it too often creates budget imbalance. That’s why plan monthly payments and know exactly where you stand.
If such offers are utilized, even if they are offered at zero rate, they will end up putting the budget in difficulty, which starts beginning of financial problems.
Remember that buying several times, is still a credit which essentially means living beyond the means. Because if you had the means to pay right away, you wouldn’t have used this kind of offer!
#6: Impulse buying
It is also one of the enemy of finances. The impulse that makes us buy another pair of shoes, clothes, and many other things; when we don’t really need them. Discounts, cashback and reward points are reasons for impulsive buying.
And it’s still the impulse that pushes us to load the shopping bags. E.g. going to buy a coat but returning home with a whole wardrobe!
#7: Not comparing
Whether it is for loan or credit cards, or bank changes or for the purchase of an appliance or a computer, we often forget to study the market.
Giving up an offer before comparing prices is a mistake that hurts finances. Because if we spend a little time searching and comparing, then saving is possible.
#8: Not analyzing expenses every year
It also hurts finances. E.g. Because of habit or laziness we renew insurance with the same company without even trying to see if we can get better policy elsewhere and at a less price.
Another example is shopping at the same supermarket. With little research, you can save a lot of money by going to other supermarket.
#9: Holding a credit card without really needing it
A credit card is actually a bank card combined with a revolving credit that is most expensive on the market. By analyzing the needs, you may find that another type of credit, less expensive is available to finance the purchases.
Having a credit card pushes people to consume, which hurts finances. Especially if you have an ability to spend the money available on the card, which is of course higher than the money you actually can repay.
#10: Not planning in advance
Planning in advance saves money. Whether it is for travel, education, marriage, etc; planning is extremely crucial to reduce expenses. Not planning, will affect budget.
By avoiding mistakes that affect finances and at the same time adopting good habits such as saving, planning, analyzing, comparing, you will see the positive impact on personal finances.
Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].