Every mistake you make is a proof that you’re trying, but not every mistake should be taken lightly. Especially, when it’s a financial mistake, it’s impact can have a lasting effect for years to come.
One of the essential processes to follow to achieve financial freedom is to make strategic money moves. And, it is not something you can accomplish in a day; it’s a lifelong learning process.
It is true that we learn from our mistakes, but there are some financial mistakes that can unhinge your endeavor for decades. The achievement you’d have made by taking small and smart steps can vanish in a moment as a result of a wrong financial move.
We share with you five crucial financial mistakes to avoid for a better financial future.
A person, who never made a mistake, never tried anything new.
~ Albert Einstein
Don’t Wait for the Right Time to Start Saving for Retirement.
Wait, is there a right time to start saving? The answer is no. Don’t wait too long to save for retirement or else you’ll have regrets later. You can start now and plan to have a peaceful retirement. Almost every employer offers a 401(k) which can help you contribute to your savings for retirement and enjoy the benefits. Start looking for options to invest and save for future.
If you’re in your 40s and planning to retire in another 20 years, you can still manage to cover your retirement expenses and lead a comfortable life post retirement by taking the right steps now. Since you’ve got 20 years to plan for retirement; you might need to contribute more towards saving.
If you’re in your 20s and this is your first job, then start contributing to a 401(K) or IRA offered by your employer. You can contribute a small amount initially then widen your search for other investment options as well. Even a tiny saving chunk at an early age takes advantage of compound interest and would help you retire as a millionaire.
Avoid Late Payments of any Debt
Being forgetful can be ignored but not at the cost of losing your hard-earned money. One of the significant financial mistakes that cost many others is late payments. Firstly, it’s good to avoid debts at all, but if you do have them, on-time payment is a must. Your credit score can get affected by single late payment, and you wouldn’t want to face the effects of a bad credit rating.
How late payments can affect your credit score and cause you:
• Your loans can get denied
• Higher interest to pay for a mortgage, car loan, etc.
• Higher auto insurance costs
More importantly, late payments incur late fees, and possibly higher interest rates, which will delay the goal of getting out of debt. So do all that you can to stay organized, and set reminders to make your payments on time.
Never Buy a Home That is Too Expensive
Most of us fall into the trap of buying a home that is too expensive for our budget. “You’ll grow into it” others will say. You don’t want to pay most of your income towards your mortgage each month and be left with nothing to save. Additionally, a costlier house could mean higher maintenance cost as well. Also, you will need to consider other expenses like property taxes and insurance premiums too.
A general guideline of spending no more than 25% of your take-home pay for a mortgage or rent will help you stay within your budget and leave cash for all the other things in your budget.
Use Credit Wisely
Credit cards if used wisely can get you the best benefits. Buying everything on credit is fine until you are unable to repay it on time and begin to accumulate interest. Almost 38.1% of American households are under credit-card debt, and they pay more than $280,000 in interest over a lifetime.
Use credit wisely, by paying off the bill in full each month to avoid interest and late fees. Have a cash saving or emergency fund in place to cover the unexpected things life can throw at you. This will keep your reliance on credit to a minimum and avoid running up massive amounts of debt.
Never Buy or Lease a Car on Credit
Before you plan to buy a car, consider a budget and can you afford it comfortably. A car or truck loses its value the minute you drive it off the lot and is considered a depreciating asset. It’s good to avoid car loans and payments, freeing cash up for other use.
Instead, buy a gently used car with cash. Say a two-year-old car with 20-40k miles on it. You’ll find great discounts in that range, and typically the car is broken in enough to determine it is not likely a lemon while still having tons of life left in it.
You’ll also have the leverage of buying with cash, and not be dependant on the approval of a loan.
Everyone makes mistakes, but some financial mistakes are more costly than others and thus should be avoided altogether. The five financial mistakes listed above are those, which you can avoid for a financially secured future.
James has been writing about money and frugally for the last five years and has contributed to some prominent finance and money management blogs. You can visit his finance blog to find more about his writings.