When it comes to money, even the best of us can stumble and make mistakes, some of which are so common you’d think they’d be easy to avoid. But that’s the funny thing about money. It’s easy to point out errors as an outsider, but when it comes to your own finances, it’s notoriously simple for things to go awry right under your nose.
Below are some of the most common money mistakes many people–even those schooled in personal finance management–often find themselves making before it’s too late.
You’ve Neglected Your Emergency Fund
By now, you’ve probably already started working on an emergency fund. But many people, after setting aside an emergency cash fund, fall complacent and borrow small amounts from it, promising to pay back shortly.
The only times you should ever touch your emergency fund is for actual emergencies, and if you want to add money to your fund. Period.
Spending Too Much to Rack Up Rewards
On paper, spending for rewards and points can seem like a smart purchasing decision—if you’re going to spend anyway, you might as well do it while working to get something in return.
The only problem is that the concept of rewards often encourages people to spend more than they ought to. This phenomenon, often called “purchase acceleration,” refers to how consumers increase their spending to chase a goal, which can be:
- Rewards and points
- Time-limited offers
- Sales and other promotions
There’s nothing wrong with using a credit card with a great rewards program. Just be sure you’re spending on needs, not wants.
Not Investing in Yourself
And by “yourself,” this can refer to your health, your personal development, and your career.
Investing in career coaching and skills advancement not only help insulate you from being “stuck” in your career, it also helps ensure that you’re constantly learning and moving forward. Many people fall into the trap of spending on material things after meeting certain career goals, not knowing that self-education is key to making themselves invaluable in their respective industries.
Self-education can be as easy as simple as buying a book, or as sophisticated as enrolling in an online class. The choice is entirely up to you and your needs.
Having Only One Source of Income
Many people often become complacent after finding a job, not knowing that the days of being “company men” have practically come to an end. These days, it’s just not practical to live out the rest of your working days having the same job at the same company.
Job changes are necessary if you want growth. Moreover, you want to earn income from as wide a range of sources as possible. The more diversified your cash flows are, the more stable your financial position will be.
Falling Into the Loan Trap
We live in an economy that relies so much on credit, that taking on a loan has become commonplace for many people in the United States. There is nothing wrong with taking on a loan. But you also need to ask yourself, “Is it a good loan?” Far too many people loan more money than they can afford to pay back, to buy things they don’t truly need, such as a large house that’s far beyond their means, or a car that’s more flashy than practical.
The debt is rising fast in many Nordic countries where payday loans are expanding quickly and very low credit restrictions are made when approving new loan customers, however rules are tightening up according to this source.
Be realistic. A loan needs to be based on your spending capabilities after all your existing bills and obligations.
Splurging Too Often
All of us make the occasional splurge as gifts to ourselves or our loved ones. But ask yourself if these splurges are actually truly special, or happening each time something good happens in your life—such as receiving kudos at work, or hitting a weight loss target that, when you think about, should be a reward on its own.
Lending People Money
Are you lending money, or are you giving it away? Family and money are rarely a good mix, and if you find yourself never getting back the money you supposedly lent from family and relatives, it’s best if you don’t let money enter your relationship at all.
Smart money management is about identifying your bad financial habits and making concrete steps to correct them. Ask yourself if you’ve fallen into these money traps, and be ready take the appropriate steps to dig yourself out.