Financial literacy gives you the necessary skills that will help you manage your money efficiently, through making sound and informed financial decisions. Nobody is immune to making some bad financial decisions. When we educate ourselves about good personal finance, we avoid having to learn everything through personal trial and error. When it comes to money management, errors can be costly. It is always better to avoid as many errors as possible opposed to going with the flow and learning through experience. This article talks about common money mistakes that we should avoid. Knowing what mistakes to avoid forms part of financial literacy education.
Not having a Credit history
Focusing too much on trying to avoid accumulating debt can lead you to neglecting building a good credit record for yourself. Not having a credit record is undoubtedly better than having a bad credit record. If that’s the case, why is not having a credit record a bad financial decision? It can interfere with financial plans that require you to have a good credit record to in order to obtain credit . If you don’t have a credit record you might still get credit but at a higher interest rate.
Some start up business owners take out personal loans to finance their businesses, with the idea of repaying the loan from the profits of the business. When the interest rates are high due to not having a credit record, it drastically lower your net profits after making the loan repayment.
Amongst other benefits, a good credit record will save you money and earn you some credit card rewards – not building a good credit record is an expensive mistake.
Can you afford it?
This question is usually answered with a quick yes or no response. The answer to this question is more complicated than we think. It is common knowledge that having the money to buy something doesn’t necessary mean that you can afford it. If you don’t take note of all your expenses or adhere to a set budget, you can’t say you know how much you can and can’t afford.
Being able to cover all your monthly commitments is good but are you always left with no money by the end of the month? Are you able to save at least 10-15% of your total income? If your answer to these two questions is no, you could be living above your means. You need money in order to reach your financial goals and to enjoy a better quality of life. You need to find ways to increase your wealth opposed to over stretching your budget.
How much can you rely on online affordability calculators? Affordability calculators should be used as guidelines and not as a definite way of checking if you can afford something. Your financial plan is unique to you and your needs no one should know what you can afford better than you. Making financial decisions solely based on affordability calculator results is not wise.
Lack of Financial goals
Long-term financial goals usually need time to come to fruition. Drawing up a long-term financial plan as early as possible allows you to see the exact time-line, and set small milestones that bring you closer to your goals. Depending on when you start generating income and how long you plan to work until retirement, you have roughly 42 years to save up for your retirement. It seems like a very long time, maybe it is, but other living expenses shrink the amount you are able to save towards retirement. If you start saving for your retirement late, you will have less money saved up by the time you retire, unless you generate a high income and you are able to put away a lot of money in a short period of time. Whatever your plan for retirement is, you need to think about it today and start planning it. Not setting financial goals leads to careless and impromptu spending.
Many believe that they would have to be accountants or possess special skills in order to properly manage their finances. Bank consultants are always available to speak to customers about any financial questions they may have. The internet is also a vital source of information. No matter how cliché it sounds; it’s not so much about how much money you have, it’s about what you do with it. If you don’t set up a plan for your future, you won’t be able to make the most of what you have. Ever wondered why some have gone from having it all to having nothing? – poor planning!