Managing finances is a science. It requires clarity, planning, optimizing and a vast understanding of different fields. It is no surprise that bad decisions can turn sound financial conditions into a disastrous situation.
So worried what you might be doing wrong? We have compiled a list of the most common financial mistakes.
1. Excessive spending
First and foremost, people are into the habit of overspending. Unbeknown to them, they are using shopping and spending as a way of self-medication. If you notice any shopaholic around, you will observe a pattern where with the slightest of stress triggers they would head to the shopping mall. To avoid this, you have to see spending as a means to live rather than a self-gratification activity[i]. The importance of frugality can not be emphasized enough: with advertisement, excessive social media consumption, people spend to blend-in and to gain social approval. The only way around this is to make a way-forward for yourself and set financial goals and targets.
2. Subscription/Never ending payments
The recurrent payments, the endless subscriptions, the magazines you don’t even bother to read, the Netflix etc. before introducing these to the list of your financial commitments: just think—do you really need it? Is it worth putting extra burden on yourself? Remember these payments can end up recurring for years, an innocent looking $15 subscription a month equals $180 in a year[ii]. If you add up all the small nitty bitty payments, they would end-up being a huge waste of resources. So, ditch-out the non-essentials and revisit the ones you think are necessary. Who needs cable when we all use internet? Do we have the time to actually read the subscription magazines? What needs will it fulfill? Before entering any subscription payments, be mindful of these things.
3. Living on borrowed money
In a lot of cultures around the World borrowing is a “taboo”. It is considered a social taboo and people who have borrowed money are looked down upon. Obviously, borrowing money in-case-of-emergency is completely understandable, but to borrow for luxurious items should be deemed a crime. Research shows that borrowing would take people to a deep financial crisis[iii]. It further goes on to say that a quarter of the borrowers will use the borrowed money to go on a vacation of a life-time, while 15% of the borrowers will use that money to buy a new car and 11% will borrow cash to get a house extension. Clearly, this sort of borrowing is risky and can put individuals in a compromised financial situation.
4. Buying a new car
In terms of poor financial decisions, buying a brand-new item (which can be used second-handed) should be on the top of the line. When it comes to car, more so. Firstly, buying a new car has an additional price for reasons such as “the smell of the new car”. Honestly, a buying a year-old car would save somewhere around 16% of the cost, with having same perks and utilities. Furthermore, this may sound unfair, but a new car depreciates faster than older vehicles, a new car could depreciate as much as 19% in the first year[iv], meaning that you could be paying more than what you own. So, clearly the better financial option is to go for a used car.
Buying a large house
A lot of people make the mistake of buying a larger house than what they actually need. If you are a family of three and you buy a large 6000 ft house. The overall maintenance, utilities, tax cost would be higher[v]. Firstly, just imagine—cleaning a large house is a nightmare and that too on a day-to-day basis! If you count the costs of upgrading, changing the counter-tops or flooring, this would be an impossible undertaking for the larger houses. Plus, if you own a smaller house, it would be easier to lead a minimalist lifestyle which might help in achieving other financial goals.
The final word
Be mindful of your spending, remember to live below your means, try to find gratification in hobbies and not in spending. Living below the means opens up new adventures and eases the stress of always making a quick buck. So, practice mindfulness and achieve your financial goals with planning persistence and understand you are the master of your destiny.
[i] “How to stop spending/Webpage,” www.daveramsey.com, Corporate, Accessed on 02 Apr 2020,https://www.daveramsey.com/blog/the-cure-for-excessive-spending
[ii] “What is recurring payment?” 8 Do’s and Don’ts for Success/Webpage,” www.tidalcommerce.com, Corporate/published 26 Oct 2017,https://tidalcommerce.com/learn/dos-and-donts-recurring-payments
[iii] “Society living on borrowed money/Webpage,” www.dailymail.co.uk, Corporate,Accessed on 02 Apr 2020,https://www.dailymail.co.uk/news/article-299564/Society-living-borrowed-money.html
[iv] “3 Reasons why you should never buy a new car/Webpage,” www.wisebread.com, Mikey Rox, Published on 01 Feb 2016,https://www.wisebread.com/3-reasons-why-you-should-never-buy-a-new-car”
[v] “5 reasons you should buy a small house/Webpage,” www.businessinsider.com, Money cashers, Published on 04 Oct 2011,https://www.businessinsider.com/personal-finance/how-to-retire-early-steps-for-early-retirement”