Financial problems, like many medical problems, are best detected early (clean living doesn’t hurt, either). Here are the common personal financial problems I’ve seen in my Personal Life, and how to avoid them. Enjoy!
Personal Finance Mistake#1. Not Planning
Human beings were born to procrastinate. That’s why we have deadlines (like April 15) — and deadline extensions (need another six months to get that tax return done?). Unfortunately, you may have no explicit deadlines with your personal finances. You can allow your credit card debt to accumulate, or you can leave your savings sitting in lousy investments for years. You can pay higher taxes, leave gaps in your retirement and insurance coverage, and overpay for financial products. Of course, planning your finances isn’t as much fun as planning a vacation, but doing the former can help you take more of the latter.
Personal Finance Mistake#2. Overspending
Simple arithmetic helps you determine that savings is the difference between what you earn and what you spend (assuming that you’re not spending more than you’re earning!). To increase your savings, you either have to work more, increase your earning power through education or job advancement, get to know a wealthy family who wants to leave its fortune to you, or spend less. For most people, especially over the short-term, the thrifty approach is the key to building savings and wealth.
Personal Finance Mistake#3. Buying With Consumer Credit
Even with the benefit of today’s lower interest rates, carrying a balance month-to-month on your credit card or buying a car on credit means that even more of your future earnings are going to be earmarked for debt repayment. Buying on credit encourages you to spend more than you can really afford.
Personal Finance Mistake#4. Delaying Saving For Retirement
Most people say that they want to retire by their mid-60s or sooner. But in order to accomplish this goal, most people need to save a reasonable chunk (around 10 percent) of their incomes starting sooner rather than later. The longer you wait to start saving for retirement, the harder reaching your goal will be. And you’ll pay much more in taxes to boot if you don’t take advantage of the tax benefits of investing through particular retirement accounts.
Personal Finance Mistake#5. Falling Prey To Financial Sales Pitches
Great deals that can’t wait for a little reflection or a second opinion are often disasters waiting to happen. A sucker may be born every minute, but a slick salesperson is pitching something every second! Steer clear of people who pressure you to make decisions, promise you high investment returns, and lack the proper training and experience to help you.
Personal Finance Mistake#6. Not Doing Your Financial Homework
To get the best deal, shop around, read reviews, and get advice from objective third parties. You also need to check references and track records so that you don’t hire incompetent, self-serving, or fraudulent financial advisors. But with all the different financial products available, making informed financial decisions has become an overwhelming task.
Personal Finance Mistake#7. Making Decisions Based On Emotion
You’re most vulnerable to making the wrong moves financially after a major life change (a job loss or divorce, for example) or when you feel pressure. Maybe your investments plunged in value. Or perhaps a recent divorce has you fearing that you won’t be able to afford to retire when you planned, so you pour thousands of dollars into some newfangled financial product. Take your time and keep your emotions out of the picture.
Personal Finance Mistake#8. Not Separating The Wheat From The Chaff
In any field in which you’re not an expert, you run the danger of following the advice of someone you think is an expert but really isn’t. You are the person who is best able to manage your personal finances. Educate and trust yourself!
Personal Finance Mistake#9. Exposing Yourself To Catastrophic Risk
You’re vulnerable if you and your family don’t have insurance to pay for financially devastating losses. People without a savings reserve and support network can end up homeless. Many people lack sufficient insurance coverage to replace their income. Don’t wait for a tragedy to strike to find out whether you have the right insurance coverage.
Personal Finance Mistake#10. Focusing Too Much On Money
Placing too much emphasis on making and saving money can warp your perspective on what’s important in life. Money is not the first or even second priority in happy people’s lives. Your health, relationships with family and friends, career satisfaction, and fulfilling interests should be more important. Money problems can be fixed over time with changes in your behavior.