Understanding personal finances and implementing them in a right way is really very difficult for some people and they may sometimes make a few financial mistakes, as a result personal finances may be affected very badly. There are many ways to manage personal finance; some may succeed in managing them better than the others because they follow certain rules and steps to avoid the common mistakes. Here are seven personal finance mistakes made, make sure they are avoided at all costs:
1. Lack of realistic budget: Without having a proper budget plan you are more likely to spend more than what is necessary or available. It is the major mistake made by many people, failing to create a realistic budget will to some extent prevent you from knowing the true amount that you’re spending and you may end up taking out loans or cash advances to meet your daily needs and wants.
2. Credit card usage for every day purchases: People often use credit cards for everyday items even though they have sufficient cash in their pockets. Using credit cards could have a detrimental effect on your bank balance as you never see the money changing hands and could potentially lose track of your spending. Many people fall into credit card debt if they use their card for major purchases and do not pay back the regular instalments on time.
3. Unable to track expenses: If you are not able to track your expenses then you may not know where your income is going. Divide your monthly income into three categories; money for your needs, for fixed monthly payments such as the mortgage or any other loan, and also money for savings. If you are able to set a realistic budget and follow it then you’ll be able to manage your personal finances very effectively.
4. Delaying monthly payments: If you owe debts and you delay in making monthly re-payments for a certain period of time it could affect your credit rating and you may end up in paying more on interest. In order to avoid this set various other alternatives when you can’t pay them regularly. Consider help from your family members, friends or take out a short term loan, like a payday loan, to make monthly payments on time.
5. Buying what you cannot afford: Do not spend beyond your means, just to enjoy a luxurious life, stop buying things that you cannot afford. They could add up and put you in severe debts.
6. No proper retirement plan: It is very important to set up a savings account, especially if you’re getting ready to retire. Investing more on a retirement plan however is not a good idea. This is the common mistake made by many people who invest more into retirement plan unnecessarily; just stick to a simple savings account.
7. Failure to set aside funds for emergencies: Everyone should set emergency funds to meet any kind of unforeseen situation. This emergency fund should be at least 6 months of your salary.
My name is Michelle. I am a tech writer from UK. I am into Finance. Catch me @financeport