Your financial situation is a combination of every financial decision you’ve made up to this point. However, identifying your financial mistakes – and precisely where you went wrong – will help you avoid making more down the road. In this article, we share 5 common financial mistakes most people make.
1. No Personal Budget.
A budget is your personal financial plan. Personal budget and budgetary controls are key steps toward achieving your financial goals. How you budget to spend and control your earnings will determine your financial success or failure. You need to know where you are to know where you are going; this makes spending some time planning your finances a must.
You should prepare a personal budget indicating how you will spend regular monthly income. For example your monthly expenses budget may include rent, transportation and utilities, and allocate 20% to savings, and retirement.
2. No Emergency Fund.
Many people understand that the unexpected can happen any time, but at the same time many of us failed to take even a small preparation towards this unexpected. Without an emergency fund, your next home or car repair could end up putting you in a bank overdraft debt. That is another recipe of financial stress and has caused many people to live on pay cheque to pay cheque.
Set aside D250 or even D100 from your monthly salary. At a minimum, have an extra D1,000 as emergency fund, and build up a cushion of three to six months of living expenses. Remember emergency funds should kept in accounts like savings or current accounts.
3. Not Contributing to Personal Retirement Fund.
Many people complains that they are not making enough money, or retirement seems so far. For these reasons, they don’t contribute reasonable amount towards retirement. Well, if you want to build enough funds for your retirement you need to continuously contribute. Please do not think that your social security pension fund will be enough for your retirement. You should rather start a self-managed retirement fund along the social security provident fund.
First, check that your employer is paying social security contributions for your retirement which is 15% of basic salary. Then, put aside some money on your private retirement fund. This fund could be manage with investment products like treasury bills, private shares or real estate. Do you know that if you do not get money working for you, you will never stop working?
4. Not Understanding the Products Risk, Rewards and Policies
Many consumers have invested in financial products of which they have little clue about the investment risks. This is another financial mistake you have to avoid. For example hedge funds are more risky than mutual funds. Or buying bonds from a reputable financial institutions without understand the underlying issuer.
Do not invest or buy any financial product that you do not understand the risk and benefits.
5. Too Much of Consumer Debts
The last but a critical financial mistake is the amount of consumer debt people borrowed. Consumer debts are moneys you borrowed for spending instead of investments. Do you know that borrowing is simply the spending of future income today? The more you borrow, the more your future incomes will be used for repaying debts.
Have you made any of these mistakes? Or are there other financial mistake you wish to share with us? Drop it in comment box.