Personal finance isn’t exactly something most people get excited about. While it may be boring, that doesn’t mean personal finance isn’t immensely important. Sadly, most folks do not handle their money well. It’s important to make sure you aren’t one of these people. Here are five common personal finance mistakes you simply must avoid.
1. Accruing bad debt
Going into debt does make sense in some situations. Getting a college degree is still very valuable. Taking out a loan to buy a home is not a bad decision. But going into credit card debt so you can buy a new pair of expensive shoes or take a nice vacation? That’s not so smart. Going into debt for a new car or another big ticket expense is another common form of bad debt.
2. Exerting no self-discipline
Your spending will inevitably be a problem if you make no attempt at self-control. Impulsive decisions are usually bad decisions. Stop and think before you make any purchase — especially expensive ones. You’ll have to learn how to say “no” to yourself. Setting yourself limits is a necessary part of living a responsible life, both financially and otherwise.
3. Spending everything you make
It’s easy to fall into the habit of spending your entire paycheck every month. After all, as long as you can take care of the necessities, what does it matter what you do with the money left over? But this is terrible reasoning. Saving for a rainy day is critical. You never know when you might be fired or encounter an unexpected medical expense. Living paycheck to paycheck is living on the edge of disaster.
4. Not tracking spending
If you have no idea where your money goes every month, you have a problem. Start keeping a budget in which you track every purchase you make. The experience will be eye-opening. You will likely be shocked at how much you spend on certain things. A budget will arm you with the knowledge you need to prune wasteful, pointless spending. A budget is an invaluable tool in planning for the future as well.
5. Not starting to save for retirement
It’s easy to imagine that putting off saving for retirement is okay. But it isn’t so. Investments grow over time. This means that the earlier you invest your money, the larger the principle will be when you are ready to retire. Investing now rather than ten years down the road can make a massive difference. Even if it’s only a small amount at first, getting started right away is wise.
While handling money responsibly might not be exciting, it is extremely important. In fact, it’s a key aspect of living a good, happy life. Falling into the pitfalls of the most common personal finance mistakes can lead to financial ruin and misery. Conversely, using money well means less stress about finances and a safer, more secure future.