Like just about everyone, I’m sure you can think of at least one poor financial decision which has come back to bite you. No one manages their money perfectly, and we’re all guilty of a slip-up here and there. However, there’s a difference between the little things which you can bounce back from, and larger financial mistakes that will keep haunting you years after you’ve made them. Here are some of the big personal finance mistakes which you really don’t want to make!
Spending Your Cash Cushion
If you’ve got a decent cash cushion you can lean on in emergencies, then you’re in a lucky minority! Countless Americans are struggling to make ends meet, usually because their income is just enough to cover their living expenses, or a little bit under. If you have a little extra capital to throw around right now, you need to start thinking about how you’re going to use that money to make your personal finances slightly more secure. Far too many people splurge on luxuries when they know they have extra cash. I’m not saying you can never have nice things, or really treat yourself every once in a while. However, if you’re eating out three or four times a week, it may be time to change some of your habits. With every big purchase, stop to look at your emergency fund and savings, and whether it’s really enough to depend on.
Failing to Weigh Up Your Borrowing Options
Every now and then, there are times where we need a little extra help with our finances. This is especially true if you burnt through your emergency cash cushion back when you didn’t need it! There are hundreds personal loan companies out there like LendingTree which can be used to help you out of a pit. However, if you rush into any kind of borrowing plan without considering your options, you could end up seriously damaging the state of your personal finances. Taking out a personal loan is generally a safe move if you understand all the fine print. However, it’s not always the smartest way out. For example, if you’re looking for some cash to consolidate debt with, it may be better to open a new credit card and transfer the balance over from your other cards. This is an especially good alternative if you can get your hands on a 0% introductory offer! You won’t be able to get zero interest from a lot of other sources, and even with the fees you’ll need to pay to transfer your balances you’ll still come out better with a credit card. When you need money, you need money. However, it’s essential to research and compare all your options before choosing one.
Putting Off Your Retirement Fund
This is one of the most common financial mistakes I see among young adults. Although I can’t really condone it, I can certainly understand it! Retirement is still a few decades away for people in their early twenties. Naturally, this can make it sink to the bottom of their list of priorities. Though you may want to put off any thought of retirement, and spend all the excess money you earn, you’ll look back and thank yourself if you start saving for retirement as early as possible. By starting early, you’ll have to put away less at a time, and you’ll earn a lot more interest in the long run. Let’s say that you were on $45,000 a year and wanted to build a steady retirement income that was around 80% of this. If, like many people, you want to be able to retire at age 65, you need to start making a certain amount’s worth in contributions. If you were to start in your mid-twenties, you’d only need to put away $3,870 a year, or $322.50 per month. On the other hand, if you started saving when you turned 35, you would need to come up with $5,715 a year. I’m sure you can feel the difference to your wallet just by reading this! It’s probably a long way off at this point, but it’s important to make plans for retirement now. The earlier you save for it, the less of a burden it will be in later life.
As you move forward and shape out your life, be sure to stay away of these massive financial mistakes. Taking careful steps to avoid these and other blunders can mean the difference between bankruptcy and a bright, stable future.
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