If you look into your account or consider your credit score and are filled with sorrow, you’re not alone. Unfortunately, many fall into the pit of making certain financial mistakes that greatly impact their economy.
If you can relate to this, you’ve come to the right place. This article discusses common financial mistakes to avoid, examples of financial problems and how to resolve money issues.
Common Financial Mistakes that Keep People Poor
Only a few things in life that can weigh you down, like money problems.
Although I am one of the major proponents of money not being a source of happiness, I also know that money can make you happy.
Let’s be real; it does solve some problems that can make you unhappy. And at the very least, it prevents the inevitable worry that comes with serious financial problems.
For this reason, we must learn to be financially shrewd to avoid being in such situations.
I am willing to admit that there might be situations where financial problems can’t be prevented, but they can in many cases. You can avoid having money problems if you commit to being financially wise.
And that’s why I wrote this article: to help you avoid common financial mistakes that can break you down.
Therefore, this article will examine some common money problems that keep people poor and how to avoid them.
1. Lack of Financial Goals
We understand having goals for most areas of our lives, but we miss it regarding our finances.
Many people are simply earning money without goals, and that’s not advisable if you want to set your economy in order.
You need to set a realistic goal for a specific period and then work towards meeting it. For instance, you can aim to buy a house or pay off your student loan.
Then, if your present income cannot meet the goal, you see what needs to be done. For example, it could be having another stream of income, honing your skills to get a better job or negotiating a higher salary.
In setting your goals, make sure they’re realistic and based on priority. Don’t set goals that you know will break your back to fulfil, but don’t also set goals that aren’t challenging at all. Some people spend far too much, and they need a challenging goal to make them save more. Knowing that balance is important.
On the other hand, your goals should be based on priority. You may not need a car when you don’t have a month’s savings or an emergency fund. The only exception is if the car will be used to make money, say you want to start offering car-hailing services.
Additionally, don’t overwhelm yourself with too many goals at once. Take them one at a time based on priority. Of course, you should if you’re earning so much you can do two simultaneously.
2. Poor Financial Planning
Poor financial planning is one of the biggest financial mistakes many make. It’s not enough to have a goal; you also need a clear plan to realise it.
This is where financial education comes in. No, you don’t have to be a financial expert; you just need basic literacy to put your money in order.
There’s so much information online that you should take advantage of to learn to meet your goal.
For instance, taking a course to improve your skills for more income is a step in the right direction. But you also need to know how to keep your books in order.
Learn to budget and make one every time your income comes in, monthly or weekly. Have a set percentage to save; don’t reduce it as much as possible. Have a percentage that goes towards paying debts if you have one, set aside money for important expenses and insurance, and then a little for entertainment.
While you can have this mentally, if writing down your budget will help you keep it, you should.
Also Read: Practical Tips to Improve Yourself Professionally in 2024
3. Excessive Spending
Too many people spend beyond their income and budget. That’s why strict budgeting is important, so you don’t spend money without accounting for it.
The problem is that we don’t realise that little things add up. That little $5 to order takeout daily adds up to nearly $2000 at the end of the year.
Also, avoid impulsive buying as much as you can. Even if you want to buy things like clothing, make sure it’s stated in the budget. This is why I advise people to add even the supposedly non-important things to the budget.
Usually, when you add insurance fees to your list, no one bats an eye, but people may look at you funny if they see red bottoms.
Now, please don’t add things you know you are not in the position to. If you can only afford to shop at thrift stores now, do it while working towards when you can shop at boutiques.
But I’m saying that add those things to your list so you can know whether they fit. There are some months when they might and some when you need to take it out, but there’s nothing wrong in including hairdo as a woman because you’ll need it.
So, if you need a black dress, include it. In fact, add date night to it as well; it’s important. But make sure to stick to what’s in your budget. Don’t spend frivolously, excessively or impulsively.
4. Lack of Savings and Investments
Saving is a big culture we must all imbibe no matter how much we earn. I don’t want to sound out of touch with the reality that some people eat from hand to mouth and might be unable to save.
But the point is that when people think of savings, they think of large sums of money when that’s not always true. Can you honestly save just $1? Please do. That’s better than not saving at all.
Give up some luxuries if you have to and save something, no matter how little.
Secondly, try to invest when you can. Now, as great as investment is, it’s not something you should bother about when there are other pending issues like loans, insurance and savings.
For instance, if you don’t have an emergency fund, that’s what you should be saving towards. Investment can come when you have met important financial goals because it’s more of a long-term plan.
But when you can afford it, invest instead of buying a new car. Of course, avoid making emotional investments. Be wise and only invest what you can afford to lose.
Also, if you’re into business, invest more in your business when you hit certain financial milestones instead of thinking about using it to fund luxuries.
5. Lack of Emergency Fund
We don’t pray for them, but life sometimes takes a negative turn. So, the wise thing to do is to prepare for them.
You must have a large amount set aside as an emergency fund. If you can, separate your savings from your emergency fund, and you can set certain percentages aside in your budget for both.
Again, don’t just take a huge amount for your emergency fund; do it as little as you can every month or week if that’s more comfortable.
Also Read: 10 Tips on How to Remain Happy
6. Getting Loans to Fund Luxuries
Personally, I don’t support loans or living in debt. I strongly believe people should live solely on what they can afford.
I have a mantra that I feel I should share with you, “if I can’t afford it, I don’t need it.” By afford it, I mean if I can pay for it comfortably without breaking the bank or borrowing.
However, sometimes, I understand taking loans might be necessary, but I believe you should only take loans for the necessities of life and not luxuries.
For instance, I don’t think it’s wise to take a loan to buy a car, except it will be a source of income.
Try to limit loans – if you will – to necessities or assets. For instance, taking a loan to expand your business might be necessary, but that should be after you’ve explored all other options.
7. Lack of Retirement Plans
Plan towards retirement. Some companies help their employees save towards retirement. So, if you’re fortunate to work in an organisation like that, you might not need to stress towards it again.
But if you aren’t, take time out to read about having a retirement plan and start saving towards it.
Investments are also great ways to plan towards retirement. But again, investment should be done wisely and not emotionally.
Examples of Financial Problems
People are likely to address issues faster before they become unmanageable if they can quickly tell they have money problems. So, this section will explain what to look out for to prevent having serious financial problems.
1. Expenses Exceeding Income
Your expenses being more than your income is the first sign of distress you must pay attention to. If you keep spending all you have before the next payday, there is a problem. Ideally, you should have enough to spend on necessities, save and invest.
2. Lack of Savings
A lack of savings and an emergency fund is not a good sign financially. It shows you are not making enough to survive or spending too much. When you earn money, you should be able to save a percentage of it, no matter how little.
3. Low Credit Score
Carrying over a credit balance from one month to the next will result quickly in a low bad credit and even more interest to pay. So, you need to nip it in the bud before it spreads because it might be too difficult to manage when it does.
4. Debt
This goes without saying; being in debt is an example of money problems. If you’re in debt, seek every approach to pay it off faster. For instance, you can apply to pay more per month if you have a student loan to pay up rather than spreading it across more months.
Also, avoid accruing debts; don’t take loans to fund luxuries.
Tips to Resolve Financial Problems
You can get back on your feet even when you discover you’re in a financial crisis. See the below tips to recover from making financial mistakes
1. Increase Your Income
If you’re within a certain income bracket, you’ll find it difficult to have clear financial goals. The reason being that your goal might simply be to survive.
So, you should consider increasing your income. It might take a lot of sacrifice and hard work, but start where you are.
If you have the qualifications, seek a better job and negotiate a better salary. If you’re not qualified, get the required skills to improve your income.
Another method is to try your hands at things that can bring in passive income. There are great work-from-home jobs that you can spend time on daily to make more money.
The idea is to have more than one stream of income.
2. Have a Budget
Budgeting is not old-school; it’s still very important. When you get your wage or salary, create a realistic budget detailing your expenses, savings and other financial obligations.
Give room for entertainment as well so you don’t overcompensate because you feel too overstretched.
3. Spend Less
Spend far less than you make. And when you make more, it’s not time to spend more but to save more.
You need to be wise with money. It’s like the wind, thinking you have so much can be your undoing because that much can disappear if not well-spent.
Always think of ways your money can make more for you, not just how to spend it.
4. Buy Secondhand
Secondhand is not only for the poor but also for the prudent. In fact, I daresay some clothes look better as vintage. So, instead of buying everything new, consider getting quality secondhand items.
Some home furniture, appliances, clothing, and automobiles are good options to shop secondhand.
5. Don’t Dwell on It; Take Action
When you are in a financial bind, it’s normal to keep dwelling on it because you’re worried.
But dwelling on it is not the answer.
Your question may be, “How do you stop dwelling on financial mistakes?” You stop dwelling on financial mistakes by reminding yourself that worry doesn’t solve any problem.
Think logically about what you can do, read resources and seek help to get out of that situation. Then, take action.
This will help you faster than dwelling on your problem.
Take the Necessary Steps to Resolve Financial Mistakes
Financial mistakes are sometimes avoidable, and we should all be taking steps to avoid being in it. But when we are, it’s not the end of the world. You can get out of the situation; you just need to give yourself more time and be ready to work hard.
With this article on the common financial mistakes to avoid, I believe you’ll be able to create a stable financial future. I’m rooting for you.
If you have any other financial tips you can add to help others set their money in order, please share them in the comments section below.
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