Successfully managing your personal finances always boils down to mastering the basics: earning, spending less than what you earn, and investing. However, life happens, and no one is immune from making a couple of money mistakes that derail financial progress.
But no matter how badly you have messed up your finances, there is always a way out of these financial detours. Here are some of the most common money mistakes and how you can get out of each one.
Money Matters – Credit card debt
Racking up credit card debt is, unfortunately, easy to do—and the numbers prove it. According to Experian, the average American holds a credit card balance of $6,375 in 2018—a 3 percent increase from the previous year.
When you rely on the credit card for all your expenses, it’s easy to lose track, especially since you’re not handing over actual money at the cashier. It can also seem like free money, especially when you’re a bit short on cash.
If you are in deep credit card debt, the first thing you need to do is to stop using your cards immediately. Store them in a safe place, but don’t bring them with you. Then, draw up a payment strategy that allows you to pay more than the minimum so you can get out of debt faster and avoid paying high-interest rates.
No emergency fund
In case of emergencies and unexpected financial problems, an emergency fund is your first line of defense. An emergency fund is extremely handy, especially when your car breaks down or an impacted tooth needs immediate attention. Emergencies are a fact of life, and having an emergency fund is how you deal with these things.
If you don’t have an emergency fund, you may find yourself borrowing money every time an emergency pops up, which can lead to even more debt.
The basics of setting one up for yourself is to calculate how much your expenses are every month. This number should cover everything you need to pay for on a monthly basis, like rent, electricity, phone bill, and so on. Take that number and multiply it by six. The sum is the minimum you have to keep in your emergency fund, so you’re covered for at least six months should something come up.
Going without insurance is a costly money mistake—even more expensive than paying monthly insurance premiums. Without insurance, paying for a medical emergency can quickly set you back tens of thousands of dollars.
If your job does not already offer you with health insurance, you can research which insurance company and health plan are right for you. However, if you find the cost of insurance plans too steep, try looking for a high deductible health insurance plan, which offers lower monthly premiums, but still does the job of covering any catastrophic medical bills.
Neglecting to make a will
According to Forbes magazine, 57 percent of Americans don’t have a will. And without one, the state will have to decide what happens with your finances as well as your kids. You wouldn’t want your hard-earned money to go where you didn’t intend it to go.
To avoid making this money mistake, you need to get around to creating a will. And be sure to update them regularly to accommodate for any life changes.
Waiting to invest
If you’re like most people, you are probably on the fence about investing. But the longer you go undecided, the more you’ll miss out.
There are three factors that determine how well your investments perform: the amount invested, the return rate on your investments, and the length of time they are invested. The last factor can work in your favor, especially if you are still young. In other words, the longer you wait to invest, the more you cost yourself.
The only way to fix this money mistake is to educate yourself on everything you need to know about investing and begin investing yourself. And the only way to create more value out of your investments is to follow these three easy-to-remember points: save as early as you can and save more as time goes by.