It is said that your financial situation is a combination of every financial decision you have made. While making mistakes is a part of life, some mistakes are more painful than others, more so the financial ones, and identifying what went wrong will help you avoid repeating the mistakes. In turn, this will greatly improve your financial situation and set you on the path to financial security. Below we identify the ten common financial planning mistakes that lead people to financial distress, and how to avoid them. We then conclude by identifying the key areas you need to focus on for correct financial planning, which will lead to wealth correction.
- Not Budgeting:
If you don’t have a target, it is impossible to know if you have missed it and definitely the failure to plan is planning to fail. Whether your budget takes the form of a complex spreadsheet or a piece of paper it does not matter, but it is important to measure actual expenditure against the budget on a regular basis and to adjust the budget according to your needs. This will help you avoid spending more than you have planned.
- Earn More, Spend More:
Consistently raising your expenditure is a good way to accumulate debt and to remain stuck in the ranks of poverty. To stay out of bad debt, you will either need to find a way to earn more or spend less. The first and best option is to find ways to earn more and keep your expenditure constant. Here is our take, if you earn more save more and put more focus on cutting unnecessary expenditure, through a stringent budgeting process, and diversifying your income sources through making investments.
- Impulse Buying:
Most people do not grow wealth because their time perspective is focused on short-term goals such as meeting basic lifestyle needs, buying luxury items, and paying rent. Are you one of them? Most of the times lacking a plan to spend is usually key in destroying your financial well-being; make it your duty to see into the future and put your impulse in check. However, it is important to treat yourself once in a while, to enjoy for the hard work created.
- Looking for a Quick Fix:
The mentality to have a quick fix as your financial breakthrough without hard work and sharp investment will be the worst mistake of your life. Avoid the lure of quick money from avenues such as betting, gaming and get rich quick schemes, and work hard for your money.
- Savior Mentality:
Thinking that you can solve everyone’s problems is just one of the worst financial mistakes you can make when handling your financials. Do the best you can to assist when required and always help others out in emergency, but keep in mind that you can’t solve every problem, you have to let go of the little problems and be sharp.
- Constantly Complaining:
“Life is too expensive”; “It is hopeless; I will never get out of debt”; “I do not earn enough money.” Old habits die hard; however, as long as you do nothing to change but constantly complain then you are on a path to destroying your financial future. Stop complaining and making lame excuses. Instead, take responsibility for your non-productive habits and focus on changing them. Your mind has the power to dictate what you achieve in life, so speak positivity to it.
- Focusing on your pay slip:
Avoid putting both eyes on your pay slip and diversify your income by saving it in passive income generating sources such as royalties, interest, value addition and profit. Wise men do it all the time.
- Delaying When You Start to Save:
Saving early, everyone says it’s a good thing. Do you know why? Saving early is a ritual habit that keeps you in check and disciplined in your spending and also bigger than that, it takes care of your long-term future needs. Start saving early as little as you can and you will be dodging a mistake many have fallen in love with, starting late.
- Trying to Keep up with the Joneses:
“I want to keep up with the trends so that I can match the standards of my peers.” This statement sounds and looks really bad on you as you say it. Buying a car because your old high school buddy bought one is just ridiculous, he/she could have been granted an attractive bonus package and just opted to acquire one of the cars he/she has been dreaming about. On the other hand, you drain out all of your savings and invest in a liability that will consume your pay slip income all the way to the end. Think about it.
- Use of Plastic over Cash:
The rising use of credit cards has proven technology to be enhancing convenience but has not yet proven these avenues to be convenient financial planning tools. Getting a credit card loaded with credit for personal consumption and not geared towards any beneficial plan is a pure mistake and it only adds to your debt. The challenge comes in as you sometimes spend more than you have planned for since it is hard to track expenses on a card. Many like it but it would be smart to ensure strictness in tracking your expense ledger.
In order to avoid these mistakes, and to practice correct financial planning, use the below 2 key points to keep yourself in check from the start:
- Always budget and stick to it. Avoid temptations that come along the way and only tamper with your budget in the case of an emergency,
- Diversify your income, never putting all your eggs in one basket. Diversification means you are better prepared for any shocks and surprises.
Overall, you will have made at least a couple, if not all, of these mistakes at some point, but the key is learning from them, and curving the path towards financial stability during the festive season.