5 Financial Mistake You Can't Afford To Make In 2020
Updated: Jan 27, 2020
Getting your personal finances in order can seem like an uphill battle, especially in today's era of easy credit and low-interest rates. The truth is that anyone can become more financially stable if they're willing to educate themselves and make informed decisions.
Facing financial difficulties can be extremely stressful, so this week we're discussing the most common financial mistakes people make and how you can avoid them — and economic hardship.
Not Having A Rainy Day Fund
Many people in the U.S. live paycheck to paycheck and have very little savings. This means that a minor financial setback, such as your washing machine breaking, can become a huge inconvenience. Faced with a major financial setback, such as the loss of a job or illness, many Americans do not have enough in their savings to pay their bills.
It's crucial to start a savings fund as soon as possible. Typically, you should have a minimum of three months' worth of expenses saved, that can be used in the event of loss of employment, or an economic shift, such as a recession.
Living on Borrowed Money
Keeping consistently high credit card balances is one of the biggest financial mistakes you can make. If you must use a credit card, it's important to pay your balance off in full each month. Using credit cards to buy essentials is typically not a wise financial move, as the interest charged will inevitably lead to even small purchases being a lot more expensive in the long run.
It's crucial to only spend what you can afford — regardless of how much credit you have available. Overstretching your finances is an expensive mistake, and should be avoided at all costs.
Many people work for their money, but fail to make their money work for them. This is a costly mistake and a lost opportunity, especially if you plan to retire at some point. Financially savvy people make their money work for them by investing in the markets and income-producing investments, as well as taking advantage of tax-deferred retirement accounts or employer-sponsored plans.
Investing your money does come without risk, so it's essential to educate yourself and seek the advice of a financial advisor who can help you to make an informed decision.
As the old adage goes, take care of the pennies, and the pounds will take care of themselves. Put simply, it's often the small everyday purchases that have the most significant impact on your financial health. For example, do you grab a coffee every day on the way to work? Although that $5 may not seem like it's going to break the bank, over the course of a year, your caffeine habit could easily add up to over $1200. To put this into perspective, the median monthly mortgage payment for U.S. homeowners is $1030.
Lacking a Financial Plan
Budgeting is one of the most important things you can do to ensure you're on top of your finances. It's crucial to sit down and evaluate your ongoing expenses at least once a year. You should also think carefully before you take on any new debt and weigh up the pros and cons of financing your purchases. Discussing your financial goals and needs with an advisor can be extremely beneficial when it comes to creating an effective budgeting plan.
If you'd like to start the new year by putting your best financial foot forward, check out our podcast.
All information and materials in this article are for educational purposes only. Opinions expressed in this article are based on information considered reliable, but The Daily Money Show cannot guarantee the accuracy of the information nor should it be relied upon. The information discussed in this article should not be used as a recommendation to buy or sell securities nor should it be taken as investment advice. The Daily Money Show is not a Registered Investment Advisor or Broker Dealer. The Daily Money Show is not an accounting firm and does not give tax advice regarding any security or real estate transaction. You may want to consult with an accountant, attorney, real estate agent or financial advisor before proceeding with any transaction regarding securities or real estate.