1. Creating a short-term budget rather than a long-term one
Most people think creating a monthly budget works better than an annual one, but the truth is working within a short-term mindset will make you overlook your long-term goals and not plan for them accordingly. Just think about it, how will you be able to plan for retirement or sending your kids to college if you always make short-term plans for your budget? Of course, short-term budgets are important as well and even essential for being able to create longer-term plans, but you always have to keep the bigger picture in mind.
2. Not having an emergency fund
You must always save for an emergency fund, even if you’re in debt. Set aside as much as you can each month, even as little as $50. The goal is to eventually have six months of living expenses set aside. This way the next time you need a car repair you won’t go further into debt. You can just take money from your savings and slowly replenish them again.
3. Earning income from one source only
Most people rely on a single source of income – which is understandable since a lot of jobs are very time and energy consuming and it is easier to put your focus in one direction only – but it is very risky. If your income is quite substantial and you’re able to save some money every month, then you have a bit of wiggle room if you happen to get laid off, but if your income is not that great and you’re pretty much struggling from one month to the other, it is a very good idea to explore other income opportunities as well. Try doing some freelance work or create a blog/website that you can earn money from. Don’t rely on a single job and put yourself through the stress of losing it and having no money saved. Explore your opportunities and talents.
4. Taking on too much debt
Debt doesn’t have to be a negative thing as long as you have it under control. Sometimes taking on debt is necessary and can help you not miss important opportunities. Plus, taking on debt and paying it back on time will help you improve your credit score and invest in more important things in the future. But taking on more than you know you can afford is never a good idea. If you feel you’re in over your head, talk to your creditors and be honest before your credit score gets lowered because you’re unable to pay on time. Most companies will be willing to discuss a payment plan that you can manage, so be honest about your problems. And in the future, be realistic about your ability to pay back a certain amount.
5. Buying everything new
New car, new clothes, new toys, new… everything. The value of a new car depreciates really fast, not to mention that registration and insurance are pricier on a new car. A used car can sometimes be even better than a new one. Try thinking about what items you MUST have as new. Not so many, right? You can find used items for almost every aspect of your life. You will feel good knowing that you can reuse things and it will be way lighter on your wallet. Plus, you can find really valuable items in second-hand shops, and sometimes they’re even better quality than new ones. Now I’m not saying to never buy anything new again, just expand your horizons.