Save Your Finances by Avoiding These Common Mistakes

It’s easy to make mistakes if you don’t pay a lot of attention to your financial planning, and some mistakes are more costly than others. Here are some of the common financial mistakes and how to avoid them.

With no budget

A budget is your most important personal finance tool : it’s a spending plan based on a list of expenses versus your income that helps you avoid overspending and running into debt. A budget gives you control over your cash flow, making it easier to save money for an emergency fund or for other long-term financial goals like buying a home. By sticking to your budget, you will pay off debt faster, avoid the stress of unknown expenses, and be able to spend money without feeling guilty.

Late payment of a credit card bill

Missed or late credit card payments can lead to even higher interest rates, late payment penalties, or even the loss of your credit card. Missed payments also damage your credit rating, which is critical to securing loans or credit cards, especially those with lower interest rates ( 35% of your rating is determined by your payment history ). Your credit score is also used by landlords, employers, insurance companies to determine your reliability. Get rid of the hassle and automate payments .

Not insured

The cornerstone of financial planning is risk minimization, including protecting the assets you already own. Fortunately, with insurance, you don’t have to worry about unexpected events or natural disasters that could damage or destroy your property or affect your future income. Many people pass on insurance to save money. However, giving up insurance is a terrible idea. A wrecked car, stolen property, or lifelong disability can be much more expensive than the lower monthly costs of your insurance premiums.

Excluding non-monthly expenses

Regular monthly and daily expenses are easy to track – phone bills, rentals, and car payments are scheduled regularly and hard to miss, especially if you’ve signed up for automatic withdrawals. On the other hand, one-off expenses – birthdays, holidays, vacations – can sneak up on you and lead to debt. When budgeting, look back at your previous expenses and list any recurring expenses that are at irregular intervals, such as quarterly or annually, and include them in your budget.

Using pension funds to pay off debt

Retirement savings are usually protected from bankruptcy, but they lose this protection if already withdrawn. And there are penalties for early withdrawal. For example, early withdrawals from 401 (k) are subject to a 10% penalty; you must pay taxes on whatever you withdraw and the IRS withholds taxes automatically based on your current tax category (usually your tax rate is lower when you stop working and retire). Most importantly, you are also losing a compound percentage of your long-term investments, which severely limits the amount of money you can withdraw upon retirement. Whatever you do, do not withdraw your retirement savings without getting debt relief .

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