HNE Staff Setting a budget and following it are cornerstones of sound financial management. However, it takes more than wise budgeting to get your finances in order, especially if you started with some debts. It’s equally important to avoid some of the disastrous financial mistakes people could make.
1. Not Saving Enough for Emergency Funds
If you’re too focused on budgeting your earnings for your monthly expenses, you might not forget about your savings. Medical emergencies, a flooded house, or a natural disaster might scrap everything from your bank account. Set aside emergency savings, which is ideally around six weeks’ worth of net income. If that’s too hard to achieve, start small until you can build up to that ideal savings target. You’ll only realize how comforting it is to know that you have an emergency fund once you start growing one.
2. Not Monitoring Your Spending
Budgeting should come hand in hand with tracking your expenses. Even something as small as a cup of coffee every other day or so could ruin your budget if you don’t monitor it. There are plenty of budgeting apps to help you track your expenses and develop good spending habits.
3. Failing to Talk About Shared Family Goals
Managing a household’s finances can be complicated because of multiple people and their differing incomes and expenses. However, it will become easier if you talk frequently and set realistic goals and budgets. Don’t be scared to discuss money and financial goals, such as owning a house, setting up a college fund, and more. Even if you disagree along the way, you can compromise on sticking to your family budget and achieve your goals together.
4. Not Steering Away from Credit Cards
Credit cards are good financial tools, but only if you know how to manage them. If you desperately want to get out of debt, stop using your credit cards first before you can pay them off.
Credit card use will likely saddle you with an unpredictable bill every month. Don’t charge things to your card unless you know you can pay them in full, or at least way more than the minimum amount due. Pay off your balance as quickly as possible if you don’t want to pay the interest and bury yourself in debt.
5. Failing to Budget for Miscellaneous Expenses
Budgeting experts will tell you to prepare a cushion for unexpected expenses in your budget. Give yourself around 5% to 10% of your costs foreseen. If you end up not using that extra money, you can put it in your emergency fund or retirement savings.
6. Buying New
There are many expensive purchases that you can buy used to save money because they depreciate quickly anyway. These include cars, electronics, RVs, and more. Take the car, for example. If you can’t pay it in cash, you’d need a loan to afford it. It means you’ll be paying interest to pay for an asset that will lose value quickly.
Buying a new car might mean getting a reliable one, but choose one that uses less gas, is easy to maintain, and requires a lower insurance premium. Choose a car that best suits your needs and budget.
7. Forgetting About Retirement Savings
Your Social Security pension might not cover your retirement expenses, and your Medicare might not be enough for your medical bills. Save for your retirement, even if you think you joined in the game too late. Start saving as soon as you realize this. If you find an employer who will match your retirement savings contributions, start putting money into your retirement fund now.
8. Failing to Budget for Fun
Life should not be just about paying the bills. When you make your budget, include something for fun, no matter how you want to pay off debts quickly. Spend it for a budgeted family outing, going to the movies, and dining out for special occasions. If you’re religious in tracking your spending, you’ll know when you are about to overspend on entertainment.
If you want to go out and have fun, you can get the money by limiting your spending on little luxuries. Minimize your trips to Starbucks, prepare lunch at home, and try to let go of cigarettes. Find other ways to indulge without spending too much.
9. Living In a House Too Big for You
Choose a house that is just enough for you and your family’s needs. Remember that a bigger house has more expensive maintenance. It also means higher utilities, taxes, and cleaning expenses.
10. Failing to Update Your Budget
Budgets need to be regularly reviewed and updated to help you assess your financial health. Even if you see your emergency and retirement funds and income growth, you should review your budget. It could be every three months or after experiencing a few major changes in your life, such as relocating, getting promoted, or buying a house or car. These changes can affect your budget, which then needs to be updated.
Conclusion
Avoid wreaking havoc on your financial life by avoiding the disastrous financial mistakes mentioned above. It’s never too late to change your attitude and habits toward money. Save for emergencies, track spending, share your financial goals with the family, and stick to a realistic budget. Avert the disastrous financial mistakes in your life by learning from the mistakes of others.
Another thing that can add up to your financial mistakes is your debt. As you know, debts are also easy to pile up if you don’t manage your finances properly. Learn some practical tips you can follow to pay off debt so you can enjoy a debt-free life.
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