Do you know how to check your financial health status yourself? If you have never check on your personal finances such as reviewing your monthly spending, amount of savings, insurance coverage, amount of debts and credit card balances, FICO credit score, return on investment products, etc? Most people have either never check their personal financial situation or only did it once a long time ago. We recommend you to review your finances once a year for early detection of potential problems that can cause you to fall short of financial goals or even fall into debts. By ensuring you are using your money smartly, you stand a greater chance of building wealth for long term and become financially independent faster.
Common Money Management Mistakes
Firstly, we need to learn what are common financial mistakes that can lead to money problems in our lives and those of our family.
Review Your Personal Financial Plan Regularly
Most people like to procrastinate especially with non-exciting tasks such as checking your financial health. There are no government deadlines with your personal finances, but you may end up paying a larger penalty as you let poor money management habits erode away your savings and assets. For example, you continue to hold a big credit card balance even when you have the extra money in your savings to pay it off. This wastes a lot of unnecessary money on credit card interest fees. Or you may have bought into poor investments, exposed to risks with life insurance or medical insurance coverage gaps, no long term retirement planning etc.
Reviewing and planning your finances is boring, but you can enjoy having more money and peace of mind with an optimized personal financial plan in place to help you manage your income.
Overspending And Credit Card Debts
The least you need to do with personal money management is to check whether you are consistently overspending your monthly paycheck and dipping into credit card borrowings etc. Never spend more than you earn and it is the easiest way to avoid debt and the high interest rates that work to make you poorer and poorer. You have to either spend less or earn more in order to maintain a positive savings level.
It does not matter whether you are making $2,000 per month or $50,000 a month, when there is no money left in your bank account by the end of the month. For most people, spending less and saving more is the best way to build personal wealth. On the other hand, if you continue to rely on no credit check cash advances to pay for expenses until your next pay check arrives, you will never be able to save any money at all.
Misusing Easy Consumer Credit
Buying with credit makes it easy for you to enjoy life beyond your means. A credit card allows someone with no money to buy things today and pay later, at the expense of additional interest charges. Note that credit card interest rates are very much higher compared to what the banks are giving you for your deposits. Even carrying a $1000 balance on your credit card and paying only the minimum monthly amount will cost a lot of your future earnings to be used up for debt repayment.
Most people are not able to buy a car in full with cash, so it is common to buy a car on credit. Same goes for buying a house. For such big purchases, we cannot avoid the use of personal credit but we do have a choice in the type of house or car we want to buy, given our monthly income and amount of savings. Do consider buying a used car or house for a cheaper price instead and you can carry lesser debts, leaving more of your income for savings and investments.
Easy To Apply Credit Card Traps
If you do not know how to control your spending habits and have a good sense of money management, the use of credit cards can be a high risk. Buying on credit easily lead to overspending and you may have a hard time trying to pay off your growing credit card balances. Note that your credit card interest rates will increase very quickly if you are late in payments. There are also miscellaneous fees charged when you cannot pay the minimum monthly amount. Long term payment of credit card interest fees will endanger your savings and cause problems with retirement funding and other financial goals.
Delayed Retirement Due To Insufficient Funds
Many people wanted to reach financial freedom earlier and retire before 50. However, the truth is that most workers today cannot afford to retire even when they are in their mid 60s today. This situation is usually caused by the lack of basic personal financial literacy, and repeated mistakes in the use of their money and investments. You need to start saving a big portion of your monthly income in order to prepare for retirement as well as other good personal financial habits to practice for life. However, many people save less than 10 percent of their incomes, which means it is harder to accumulate sufficient wealth for retirement. Regular saving from a younger age allows you to take advantage of tax savings through retirement account investments, and this will add extra returns and yield for you in the long term.
Make Money Fast Investment Scams
There are always many new investment products being sold that promise high investment returns without the need for proper training and education. These sales pitches are always very attractive and many are tempted to place their money for quick profits. Many high returns investments carry a lot of risks and you should fully understand the underlying investment concepts and avoid them if they are not suitable for your risk appetite.
Insufficient Insurance For Catastrophic Risk
If you do not have basic health and life insurance, you are exposed to catastrophic financial risk. Many think that insurance costs are a waste of money, paying for measures which are not likely to occur. With limited budget, it is easy to try and scrimp on insurance so that you can buy all the fancy gadgets such as the latest tablet computer or for an overseas holiday trip. Insurance is designed to pay for unexpected expenses that are so large that you will not be able to pay for even if you used up your entire bank savings and those of your family. If you have dependents, make sure you are some insurance coverage to replace your income in case anything happens to you. On the other hand, there may be no need to buy insurance to pay for losses that you can pay out of pocket. Self insurance can work out to be cheaper for the smaller expenses.
A lot of personal money problems are caused by our emotions and behavior, fueled by tempting advertisements that are bombarding our senses everyday everywhere. By learning how to control and overcome these self destructive streaks, you will be able to gain financial freedom successfully. The first step starts with checking your personal financial health.