No one is perfect, and we all have made a few mistakes in our lives. But that doesn’t mean you have to run towards them with open arms. Isn’t it better to learn from the mistakes others have made so you can avoid them whenever possible? In this Article we’re going to look at 10 major money mistakes that many people make, so that you can make sure to steer clear if you see them coming down the road. Ready? Let’s go!
The first mistake to avoid is cigarette expenses. While smoking a few cigarettes in college may have seemed harmless at the time, the truth is that continued usage may be harmful to both health and finances. When you look at how much cigarette users spend in a week or a year, it’s clear that many of them are stifling their capacity to achieve financial independence. For example, a pack of cigarettes costs nine dollars and eighty cents. Many smokers consume a pack of cigarettes every day. This works out to sixty-three dollars and fifty-six cents each week, or three thousand three hundred fifty-one dollars and 12 cents a year. The same amount may pay for your mortgage or a two-week vacation. However, many cigarette users fall into this lifestyle out of curiosity or peer pressure. The outcome of this habit is a significant toll on both one’s health and wealth over time. So try to avoid spending on these goods as much as possible.
Following get-rich-quick schemes
Following get-rich-quick schemes is mistake number two. One of the fastest ways to lose money is to participate in get-rich-quick schemes. “Quick money, quick troubles,” as the saying goes. Following a fast money scheme is almost always a recipe for disaster. Ponzi schemes, pyramid schemes, and opportunities to “make-money-overnight” are all examples of get-rich-quick schemes that are designed to make the scheme creator wealthy by taking your hard-earned money.
If you’re looking into new business ventures and see opportunities that promise high returns with low risk, be cautious. Consider this: if it takes twenty years in a career to make two hundred thousand dollars, and a new venture claims that you can make that much money in a year, wouldn’t everyone be doing it?
Overusing credit cards
Mistake number three: Overusing credit cards. Credit cards can be a useful tool for making purchases, but they can also be a burden for others. Putting too much reliance on them can lead to financial difficulty. Credit cards encourage impulse purchases. It offers you the impression that you can get anything you want with a single swipe. In a 2001 MIT research study, they have found that those who pay using credit cards rather than cash, end up spending twice as much. If you find yourself uncontrollably buying on credit, start paying with cash instead. When you pay with cash, you are physically handing over money, and seeing your wallet will make you feel the financial consequences of the purchase far more than when you pay with credit.
Having no emergency fund
Having no emergency fund is the fourth mistake. There are times when you need money to get out of a problem. We can’t predict the future, which is why not having an emergency fund set aside is a costly financial mistake. According to a Federal Reserve study released in 2019, approximately forty percent of American adults would be unable to manage a four hundred dollar emergency using cash savings or their credit card. About twenty-seven percent of those polled said they would have to borrow money or sell something to cover the four hundred dollars, while another twelve percent said they wouldn’t be able to cover it at all. Setting up a ten percent automatic deduction from your paycheck with your employer, which will put a portion of your income into an emergency savings account, can be simple, but how do you know when you’ve invested sufficiently? Most financial experts advise saving 6 months’ worth of living expenses, but if you want to be extra cautious, one year’s worth is a great investment in your future security.
Spending more than you earn
Mistake number five, Spending more than you earn. This is particularly enticing as a young adult. When you’re fresh out of college and have a steady paycheck for the very first time, it’s easy to waste your money. Buying a new car or a house, and traveling first class are exciting, but the trouble is that, if your income can’t support these expenses, you’ll wind up living from paycheck to paycheck. This problem is similar to lifestyle creep, in which an increase in income leads to an increase in living expenses. An increase in wages should not prompt you to increase your cost of living. However, most people believe that after they get paid, they should treat themselves. It is better, instead, to put this money on “wealth generation mode” through investments and asset acquisition.
One of the most common reasons people spend more than they earn is to impress others. They overspend to look richer than their peers. We are not required to impress individuals we hardly know. Or even those we do! Once you learn to delay your gratification and forget about impressing people, you will be able to expand your finances as a result. Another source of splurging is social media. People can spend a lot of money in order to appear wealthy without actually being rich. One entrepreneur I heard about, who was told that he would never succeed in life, bought an expensive car after a big windfall just to prove his critics wrong. Impressing others is a never-ending journey. Don’t show off a two thousand dollar gadget you bought using your three thousand dollar paycheck. Keep track of the budget to avoid spending more than you earn.
Having only one bank account
Having only one bank account is mistake number six. Having only one bank account makes managing your money quite difficult. You must maintain all of your emergency and college funds in one. If you overspend, you risk not having enough money when you need it. This is why it is a good idea to have at least three bank accounts. One for emergency needs. Another for daily expenses, and a third, which I refer to as a “play account”. Your play account is the money you set aside for fun or vacation. If you want to take things a step further, create an untouchable account. This account can be used as a savings account to which monthly paycheck deductions are sent. This helps you automate your savings process and ensures your wealth grows over time.
One source of income
One source of income is mistake number seven. Having only one source of money – usually from employment at a job – is a way of life for most individuals. Unfortunately, jobs aren’t as stable as many believe. Over twenty-one million people were laid off by US companies in 2018. It means that if your job was your only source of income, your cash flow abruptly stops. When it comes to income sources, think of yourself as a tree. Do trees grow fruit only from one branch? The answer is no, and neither should you. You should learn new ways to let your income work for you.
Not making sensible investments
The eighth mistake is Not making sensible investments. Investments can be risky, and many individuals put their money into things based on recommendations from friends or a strong belief that the rates of popular stocks will keep on rising. Real estate is an asset which everyone appears to be interested in these days. Most people believe that once they purchase a property, they will be financially secure. They believe that rent payment will begin to flow in every month, and their income will grow rapidly. However, tenants may default on payments, appliances may break, or the property value may decrease.
There’s some risk involved in all investments. The key to making your assets produce a consistent stream of income is to gain the necessary knowledge about a market or product before investing your hard-earned money. Make sure you research whatever you want to get into, not just because your friends are making money from it, or because a sales agent told you about the fantastic benefits it has to offer.
Fear of taking financial risks
Fear of taking financial risks is the ninth mistake you need to avoid. “No risk, no reward,” as the saying goes, and in order to make money, you must take risks. However, you must weigh the possible risks you take. Investing in an index fund, for example, carries larger risks than keeping your money in a savings account. Your money, on the other hand, will never grow if you stick it in a low interest savings account. Investing in an index fund, which tracks the fluctuations of the entire stock market, delivers historic returns of seven percent annually, which is a calculated risk that is worth taking.
Saving instead of investing
Mistake number ten is saving instead of investing. Money that is kept in a bank loses value due to inflation. On the other hand, money expands when it is prudently invested. People who are afraid to take risks will save all of their money and eventually throw it away. You must save to invest rather than save for the sake of saving. Savings made without a strategy will be squandered on things that are not beneficial. When you leave money in your bank account, you may be tempted to spend it on material items such as a new car or a designer bag. Instead, put that money to work for you by investing it in bonds, real estate, REITS, or start-ups. All of these options provide a chance to generate additional sources of income, which is far more profitable than letting your money depreciate in the bank.
Look … mistakes are a part of life. But hopefully knowing these 10 money mistakes are out there will help you avoid them, or at least make them less of a disaster when they happen. And if they do? Don’t be too hard on yourself. Just dust yourself off, get back up off the ground, and keep moving forward on your financial wealth journey.
how many accounts should a person use?
you must have atleast two accounts, the First one Saving Account and seond Current Account.