There are certain financial mistakes that we need to avoid at all cost. It is true that humans are bound to make mistakes every now and then. That is how we learn. However, there are certain errors that we need to avoid because the results can be catastrophic in the long run. This is especially true with our finances.
This is the reason why you need to be very careful about the decisions that you will make when it pertains to your money. Having a sense of foresight is crucial if you want to keep your decisions today from compromising your future. You should not make hasty decisions or ignorant ones. It only takes a few financial mistakes to make your life take a turn for the worse.
5 money mistakes that you will really regret in 10 years
There are some bad financial decisions that may seem harmless at the moment. But if you continue making the same bad decisions, that will blow up in your face in a couple of years time. You may not feel like it is destroying your finances right now. However, in 5 or 10 years time, you will realize just how big of a mistake you made. By then, it would be too late for you to undo the damage that had been done.
Of all the money mistakes that you can make, here are 5 that you need to pay close attention to.
Spending all your extra money.
If you are not living from paycheck to paycheck – you are one of the lucky few. A lot of Americans are struggling to make ends meet because their income is just enough, or sometimes not enough, for their expenses. So if you have the extra money right now, you need to think about how you can use that to make your finances secure. According to an article published on WSJ.com, Americans choose to splurge their money when they have extra cash. This was evident when the gas prices went down last year. The savings that American households got were not used to pay off debt or put aside in their savings account. The data revealed that consumers were less cautious when it came to the extra money they saved. Of the money that was not spent on gasoline, 18% were spent on dining out and 10% were spent on groceries. The latter part is probably okay but former shows where we are making a mistake. While spending the money you worked hard for is not bad, you need to check if it is a wise choice considering your current financial situation. Before you spend that money, check your emergency fund first. Also, you should also check your debts. Consider these financial details before you decide to splurge all your extra money. 10 years down the road, when you are in need of money because of an emergency, you will look back with regret on the way you spent your money in your youth.
Failing to start saving for retirement.
This is one of the financial mistakes that young adults usually make. Since retirement is 3-4 decades away, they usually put this at the bottom list of their priorities. They think that it is okay to delay saving for their retirement and just spend the extra money that they earn. If you understand what compound interest can do, you will know that this is a wrong move. The earlier you save, the less you have to put aside each month. Not only that, you will earn more when it comes to the interest. It will save you a lot of money. For instance, you are currently earning $45,000 a year and you want a retirement income that is 80% of that amount. If you want to retire at the age of 65, you need to make a specific amount worth of contributions – depending on the age when you will start. If you start at the age of 25, you only need to save $3,870 a year or $322.50 a month. If you start when you are 35 years old, you need to save $5,715 a year or $476.25 a month. If you decide to start when you are already 45 years old, you need to save $8,505 a year or $708.75 a month. If you notice, the monthly contributions get heavier the longer you delay your contributions. Try to avoid this financial mistake so your retirement contributions will not be too much of a burden.
Maxing out your credit cards.
Another mistake that you need to avoid is maxing out your cards. According to a study done by CardHub.com, consumers racked $21.3 billion worth of credit card purchases in the third quarter of 2015. This means we are building up our credit card debt – again. With the high-interest rate and various charges, using your cards irresponsibly could land you in a lot of trouble. Not only will you have a high balance, the chances of you being able to pay off your debt in full is unlikely. If you carry over a balance to the next month, that would incur finance charges that will increase your debt. Not only that, maxing out your cards would mean you are putting your credit scores in danger. Your credit utilization will suffer and that will bring your credit score down. If you let this go on, this will compromise your ability to borrow money in the future. If you want to get a home loan in 10 years, it will be more difficult if your credit score is in bad shape and your debt level is very high.
Making minimum payments on all your credit card bills.
If you want to avoid compromising your finances in the future, this is one of the financial mistakes that you need to avoid. Stop paying the minimum on your credit card bills. You need to pay more than the minimum. The best scenario is to pay off your balance in full at the end of the month. But if you cannot do that, at least, add a hundred or so in your monthly payments. That will help minimize the interest that will be capitalized into your accounts. Sticking to the minimum payment requirement means it would take you decades to completely pay off your debts. Like the former, that can compromise your finances in 10 years time.
Refusing to talk about money with your spouse or partner.
This is one of the mistakes that couples make. An open communication about your finances is the best way to manage it as a couple. According to a study published on MarketWatch.com, 4 out 10 respondents of a Fidelity Investments survey are unaware of their spouse’s salary. 1 out of 10 missed the amount by $25,000 or more. If you want to manage your finances at home, you have to communicate with your spouse or partner about it. This is very important. A lot of financial mistakes cause couples to fight over money. If you are honest about each other’s financial situation from the very beginning, you could head off arguments about your finances. You can settle your differences – especially when it comes to managing your money and where it should be invested. Financial infidelity is real and you do not want this mistake to cost you a great relationship in 10 years time. Not only that, if your spouse suddenly dies, you might be surprised at the financial situation that he or she is hiding from you. Avoid this mistake by communicating about your money regularly.
3 rules to avoid compromising your financial future
When it comes to managing your finances, it pays to have a sense of foresight. You need to understand that the decisions you will make today will cause a ripple effect in the future. If you want to protect your future, you have to make the right choices now.
Here are 3 rules that you need to implement in your financial life starting now.
Make a plan. There are many financial plans that you can use in money management. When you have a plan, you can make the right choices about your finances. It will be easier to determine how your decisions and actions today can affect your future. In case something happens to your current income, you will know how that will affect your future – all because you have a plan in place.
Set goals. Another rule that you have to implement immediately is setting goals. If you want the motivation to improve your finances, a goal will help you stay focused. This is like a runner in a marathon. When they see the finish line, they usually get the strength to go through the last leg of the race – no matter how tired they are.
Monitor your finances. Finally, you need to learn how to monitor your finances. This is another tip that will help you avoid making financial mistakes. There are certain numbers that you should always monitor. These include your savings, debt, income, etc. Make sure you always keep your eye on these numbers if you want to improve your finances.