Greetings, Frugal Farmer friends! Today we welcome Tina Roth, a blogging cohort who blogs over at ProFinance blog
. Read this awesome article and then head over and check out the great articles on Tina’s blog.
True, mistakes do give you the chance to learn, but repetitive mistakes lower the odds of success. Making one or two mistakes early in the life is okay – but make too many of them when you are all grown up, and you are sure to fail in life.
When we become adults, everyone around us expects us to be responsible with money. During teenage years, we recklessly spend money. But when we are in our late 20s or early 30s, we have to take care of it to secure our future.
It is that time in life when committing a mistake results in paying a hefty price. However, a lot of people still commit mistakes. In this article, I’ll discuss some common mistakes with money, made by us, and how to avoid them.
Parental financial support
Adults dependent on their parents for support can never understand the importance of money. They also lack the decision-making abilities.
A Forbes article cites some convincing reasons behind the said dependence. The unemployment rate has increased to 14% among 20-24-year-olds and 10% among the 25-29-year-olds. Student loan making youngsters debt-ridden is also a key reason that they rely on their parents for financial support.
Many parents feel their kids are facing more financial difficulties, faced by them. And lend them a hand. Even though the finding is valid, it shouldn’t be an excuse; an adult needs to reduce his dependence on his parents. For that, he can search for study programs, which are inexpensive, does works for extra hours, etc.
Not making a budget
Money management starts with making a budget. When you make a budget, you streamline all your expenses and earnings. It helps you get a detailed insight of all your spendings. The moment the spending exceeds beyond a certain limit, you stop shelling out money.
Make sure the budget is inclusive. An exclusive budget is as good as no budget. A budget should include all types of utilities, be required or non-required. Working out categories, and putting earnings and spending under them systematizes the process, and helps you identify the fat, so you could reduce it and manage your money better.
Just as it is important to create a budget, so it sticking to it. It’s not easy. A lot of people try to stick, but with time deviates. I suggest you follow some tips such as saving a certain amount of money every month, tracking your spending so could identify the impulse purchases, and stops pouring money into them, saving yourself from the trap set by sloppy advertisement, and self-motivation.
Living with debts
This one is perhaps the most important among all five of them. Most of us have credit and debit cards. We use those cards when we purchase something from domestic and overseas retailers, without realizing that it could throw us into the spiral of debt. I am not suggesting you to stop using credit cards, all I am saying is zero balance credit card gives you the scope to buy without a second thought, and you may incur debt this way. So be careful.
Other tips to save yourself from debt include adopting a DIY approach for common fixes in and around your home, be extra cautious when borrowing money from alternative lenders, replacing expensive stuff with their non-expensive alternatives, etc.
Remember, debt is a curse. It not only cripples an individual but his children and their children. Debt can enslave a whole generation. So, while managing your money, promise yourself that you’d be prudent enough not to incur debt.
Investing doesn’t necessarily mean investing in stocks. If you have knowledge in the stock market, I encourage you to go ahead and invest. Don’t feel daunted if you are a beginner. Understand your tolerance for risk; risk tolerance is an investor’s analysis of risks when he ventures out for a profitable outcome.
The stock market might appear complicated to you, and you feel scrupulous to invest in it. There are plenty other investment options. Look for lucrative saving schemes offered by banks. Banks normally offer higher interest rates for saving accounts than checking accounts.
Ask banks about their interest rates, and compare them. Do some calculations; if your initial amount is $100K, the monthly deposit is $200, the yearly interest rate is 6.6% and you are saving for 10 long years, after 10 years, your monthly savings balance would be $226995. You won’t even have to calculate on your own. There are plenty online interest calculators, which you could use.
If you are doing a job, set up an employee retirement plan. Talk to your employer as he might help you in this. Check the IRS website because it categorically lists down all the benefits, which you could obtain. Remember, all these are investments, which will yield profit later.
Practical finance Vs bookish finance
Guess what! Eight out of ten people make this mistake. They gather financial knowledge by reading books. What I suggest you is you follow practical finance tips. Theoretical knowledge of finance is hard to apply in real world situations.
Taking risks help you understand practical finance. However, make sure the risks you are taking are calculated. Read the books, but rely on your hunch when investing. The books merely describe credit cards, and that’s all; it’s practical knowledge that gives you an idea of the dangers associated with their usage.
What do you think of the five mistakes discussed above? Have you committed any of them? Do you think we’ve missed out on any? Do let us know in the comment section.
This article is contributed by Tina Roth, a personal finance blogger and advisor. In addition to being the editor at her Finance Blog ProFinanceBlog.com, she is a contributing writer to many other online finance blogs. Through her writing she inspires people to explore more on frugal living and money management.