They say the biggest blunders in life are the ones that are the easiest to avoid. I’m not exactly sure who said that but I’m sure someone has said it, somewhere. When it comes to financing, the effects of making poor financial decisions can truly devastate the quality of your life like nothing else. In this post, we are going to be talking about six. Obviously, there are more than six financial blunders, but these are a few common ones.
1. Living Paycheck to Paycheck
It is estimated that well over half of the population lives from paycheck to paycheck, meaning that these people are only one missing wage from falling into poverty. With inflation as high as it is now, this figure is only going to keep on going up. That’s why it’s so critically important to get out of this situation if you’re in it – Developing an emergency fund should be everyone’s first financial priority (even before paying off debt, I’d argue).
How much should you have for your emergency fund? The monetary figure depends on your own circumstances, but experts suggest around 3-6 months of living expenses. The psychological effect of doing this alone is profound – you no longer have to worry about some random emergency forcing you to sell your possessions (or organs). You can take things a little easier knowing that you’ll be fine in the event of most emergencies.
2. Lifestyle Creep
“Lifestyle creep” is where your standard of living goes up as your level of income increases. It’s a very common occurrence, in fact, this is usually considered the norm. You got a pay rise – finally, you can treat yourself to something new that you couldn’t afford to buy before. For some people it’s cars, for others, a larger house, the list of things people buy is truly endless.
If you spend as much as you earn, you’ll never become more wealthy. In fact, lifestyle creep is outright dangerous because at the moment you can’t keep up your current level of income, you’re out of luck!
By keeping your standard of living the same regardless of your increase in earnings, you are guaranteed to become more financially stable. You can put those extra savings into your investments, and your emergency fund, and maybe even treat yourself occasionally to some avocado toast that all the old folks love complaining about.
3. Not Tracking Your Spending
Without tracking your spending, you’ll never truly know where all your money is going. Only by analyzing your spending habits are you able to make changes, and then see improvements. If you wonder where all your money is going each month, but never make any efforts to investigate the issue then ultimately you only have yourself to blame. You don’t need to be an accountant, tracking your expenses has never been easier than it is today. All you need is some basic spreadsheet knowledge.
- Add dates to your first column,
- Add the expense categories to your first row,
- In the cells, add the amount you spent on whatever date/expense
- At the bottom of your columns, add a “SUM” calculation to calculate the totals
- At the bottom right of your table, add a “SUM” calculation to find the sum of all those totals from step 4
That’s it! From that, you have an in-depth look at what you’re spending in each area and what you have spent in total. I have a template that I created, which if you’d like to use (for free, no strings attached) instead of making your own then please email me – contact@35.177.69.31
4. Not Preparing for the Future
There will come a day when you will physically not be able to work, or you just won’t want to anymore. So it goes without saying that you should be prepared for when that day comes, whether it be when you are 65, 55, or even 40 and lower. Some people seem to live their lives as if old age will never come, so they put off planning, learning about investing and using compound interest to their benefit. As time goes on, the effects of compound interest become less and less effective, so it’s better to start as early as possible.
Warren Buffet, the world’s 6th richest man, made 99% of his $95.5 billion after his 50th birthday. This is compound interest at work, he’s been using it to his benefit since he was in his teens. Wealth accumulation is not linear, it’s logarithmic.
The best way to prepare for your future is to learn about financial freedom.
5. Taking on Debt When You Don’t Need To
Debt can be useful in some instances, but those situations are few and far between. In an ideal world, people would use credit in order to make themselves more money, and then pay off the loan with some of their profits. Realistically though, people just use credit to improve their standard of living. I shouldn’t have to explain how much of a bad idea this is. If you are buying something like this on credit, it can be presumed that you do not have enough of your own money to pay for it. With that in mind, how are you going to pay back the debt PLUS interest?
Please don’t delude yourself. If you can’t afford it with your own money, you definitely can’t afford it with someone else’s. This is one of the biggest financial blunders out there.
6. Excessive Monthly Payments
As more and more of the services we use start turning to subscription models, you may find that your bank account continues to get drained by many small yet consistent payments. While £9.99 a month for whatever service may seem harmless if you have just 5 payments like this per month (which is probably a low estimate), that’s almost £600 per year.
Thankfully, removing these monthly payments is one of the quickest and easiest ways to reduce your overall expenditure. It’s one reason why Netflix is losing subscribers in record numbers. As a rule, If something doesn’t add genuine value to your life, get rid of it.
