6 Common money mistakes you should avoid

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By: anonymous
on 10th Feb,2011

Everybody makes money mistakes at some stage in their life.
6 Common money mistakes you should avoid

Everybody makes money mistakes at some stage in their life. Sometimes these mistakes have a great negative impact on the financial well being of an individual. But what is more unfortunate is that, individuals commit the same money mistakes year after year. Some individuals are not even aware that they are making these mistakes. Identifying and eradicating these mistakes is the primary step to financial liberty. Read on to know about 6 money mistakes that most people make and should try to avoid by all means.

Money mistakes that can ruin your financial life

Here are 6 money mistakes that may ruin your financial life:

1. Spending money without thinking: Do you drink coffee at your favorite café while going to your office every day? Do you buy a chocolate bar for your kid before dropping him/her to school? Well, you may think these are only small expenses which you can easily afford. What's the big deal about it? But little do you realize that you are actually exhausting a sizeable portion of your income by the last day of the month.
For example: Let us assume,

The cost of one cup of coffee = $18
The cost of one chocolate bar = $5

In 30 days, the total amount of money you're actually spending = ($18*30) + ($5*30)
                                                                                                      = $540 + $150
                                                                                                      = $ 690

This means that you're actually spending around 700 bucks per month and you're not even aware about it. This explains why you don't have much money left at the end of the month. There is no point in criticizing your employer for giving a low salary. Rather, you should try to avoid making this mistake next time onwards.

2. Ignorant of your financial health: Do you keep a track on your finances? Are you aware of the amount of money you earn and spend in a month? Do you even check your bank account once in a while? If no, then you're committing a big mistake. Being ignorant of your financial health may lead you to a big mess in future. So, create a budget to keep track on your monthly income and expenditures. Check your bank account report to know about the available funds in your savings account. You'll also be able to know about the overdraft fees, bounced checks, etc and take necessary actions before it is too late.      

3. Taking out loans at unaffordable rates: It is not a mistake to take out a mortgage loan to purchase your house or a credit card to build credit history. But you'll be a big fool if you take out the loans at high interest rates. You may think that you can afford to make the payments easily. But as time passes, your expenses increases. A time will come, when you may even default on the loans, incur debt, and hurt your credit. So, it is necessary to avoid taking out loans on which lenders charge interest rates at around 17%-25%. Wait for the special discount offers and shop for the low interest loans. You'll surely get it.

4. Ignoring debts: If you're ignoring your debts, then you're committing the biggest sin or mistake of your life. Have no doubt about it. If you ignore your debts for a long time, then you're risking your financial life. Soon, you may have to endure lawsuits, judgments, wage garnishment, foreclosure, and other horrible things. Apart from that, it may become impossible for you to secure a job, apartment, loan, etc. So, always make the required payments on your debts (good or bad). If necessary, then get help from debt relief firms and pay off your dues.  

5. Not saving for your future: Have you just received your first paycheck? If yes, then you might be tempted to spend all the money on luxury expenses. You may want to purchase designer clothes for your girlfriend or a hand-stitched leather shoe for yourself. But this will be a mistake because you are not saving any money for your future. If you don't save money, then it will not be possible for you to build wealth. You can invest or buy a car or house in future. So, start saving money from now onwards. Create a savings plan. You can also open a savings account in bank which offers high interest rates. However, it will be better to work with a bank which is a FDIC member.       

6. Exhausting retirement funds: Tempting as it might be, but it will be a blunder to exhaust your retirement funds. If you borrow funds from your 401(k) account to purchase a television or a piece of jewelry, then you are exhausting your pre-tax funds. However, when you're going to compensate, you are actually doing it from your after-tax income. So, it is a big money mistake. If you need instant cash, take a small personal loan from your family or withdraw funds from your savings account in a bank.   

Finally, another money mistake will be to not purchase disability insurance. You may think that it is an useless expense. However, it can be a life saver especially when you become disabled. If you are the sole earning member of the family and become disabled in future, then you may be out of work and money for several months. You may even lose job. Disability insurance will help you cover expenses during these difficult times.

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