7 Simple Personal Finance Mistakes to Avoid
For the vast majority of people, saving money is a skill that takes time to learn and requires considerable self-discipline. While certain payments are absolutely necessary, like rent and utility bills, the vast majority of our daily expenditures are not. They are voluntary, even if they may seem vital to your everyday existence.
On top of unnecessary daily spending, there are other, far more serious personal finances mistakes that people make every day. By reviewing these possible mistakes, you can avoid falling into debt, bankruptcy, or other financial pitfalls.
Spending Money on “Wants” Instead of “Needs”
While it may seem like you need avocado on all of your sandwiches and burritos, in reality you do not, even if it may make your meal marginally healthier. While a dollar here or there may not seem like a lot of money, over time the cost of extra avocado can really add up.
Learning how to distinguish your “wants” from your “needs” is a vital step toward improving your personal finances. Once you cut several “wants” from your daily spending, you will notice your bank statement shortening and your balance steadily increasing.
Incorrectly Filing Your Taxes
Tax Day only comes around once a year, and every American has months to prepare for their annual filing. In the months leading up to April 15th, you should be receiving documents from all employers who paid you at least $600 during the year, which may be many if you’re a freelancer.
Even if your taxes are complicated the IRS will not take pity on you, and will always introduce a penalty for filing taxes late. Receiving a notice from the IRS is never fun, and many times it does not bode well for your personal finances.So, get ahead of the game and file your taxes before the deadline using tax software or enlisting the help of a professional tax preparer.
Too Many Subscriptions
From gym memberships, grooming supplies, to streaming services, there is a seemingly unlimited number of things you can subscribe to. With so many subscriptions, it can be easy to forget that you’re signed up for several subscriptions that you don’t use. Without checking your bank statement carefully, it can be difficult to notice that 10 to 20 dollars are quietly being drained from your account every month.
Falling into Credit Card Debt
While most people don’t treat their credit card like a blank check, it can nonetheless be an easy outlet that allows your spending to get away from you. Racking up huge credit card debt is bad for many reasons.
If you accrue enough debt that it starts to become daunting or even impossible to pay off, you may have to eventually file for bankruptcy. A bankruptcy could linger on your credit record for 10 years and make it all but impossible to take out loans or open new credit accounts.
Buying an Expensive Home
It’s natural to want to buy the most expensive house you can. Most people who earn enough to purchase a house want to live as comfortably as their financial means will allow. However, what most people don’t consider is that buying an expensive home also means that the cost of auxiliary expenses (utilities, insurance, and furnishings) will skyrocket comparatively.
Going out to dinner with friends occasionally might be financially justifiable, but do you really need to buy that new iPhone when yours is working perfectly? Probably not. The same goes for impulse buys, like spending more than you have on clothes you don’t need.
If you know that you’re prone to splurge purchases, which can absolutely break the bank and send you spiraling into debt, calculate these purchases into your monthly budget. Commit to setting aside a reasonable amount in a “splurge fund,” which will be used exclusively to finance your frivolous-but-fun spending sprees.
Not Having a Budget
No matter how wealthy a person might be, everyone can use a budget. Budgets help you keep track of your spending, identify unnecessary purchases, and put money towards 401(k)s and other savings accounts.
There are many different ways you can set up a budget, and countless internet tools that can make keeping track of your money a simple and painless affair.
Final Thoughts on Personal Finance
Learning how to manage your personal finances takes time, but with self-discipline and a will to learn, virtually anyone can master the art of saving. The mistakes included in this list are some of the easiest ways to fast-track bankruptcy and accrue debt, but if you manage to avoid these pitfalls you should be well on your way to a stable and sustainable financial future!