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7 Financial Mistakes You Don’t Need To Make Anymore

7 Financial Mistakes You Don’t Need To Make Anymore

Financial stress affects every aspect of your life. We are living in a society where we can just charge, charge, and charge. It seems like we are never satisfied. There will always be the latest gadgets, cars, and fashion to buy. With so many options, it’s easy to make financial mistakes. These mistakes will get you out of your depth and ultimately take control of your life. Read on for seven common financial mistakes and make sure you don’t ever make them again.

1. Paying unnecessary ATM or bank fees.

Banks are established to make money. With so much going on in life, it’s easy to not check your accounts on daily basis. This financial mistake is common and can really become a problem. ATM and bank fees add up over time, and if you’re not aware of how many fees your bank is charging, you will continue to lose money. Speak with a representative from your bank and be clear what the ATM and bank fees are. This will help you avoid unnecessary fees. Furthermore, you may want to check out some banks that literally have no fees, like Capital One 360 or Charles Schwab.

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2. Ordering too much take out.

Let’s face it: we have busy lifestyles. We can have a very hard day at work and come home late. When this happens it’s very difficult to be motivated to cook a nutritious meal. It is so much easier to just order take out on the way home. Nutritional value aside (this could be a whole other topic!), the price of ordering take out on a regular basis can seriously add up over time. Sometimes Chinese food can be from $10, $12, and sometimes even $15. And who doesn’t love ordering Chinese food every once and a while? Just keep in mind, you could spend that same money and buy something like the ingredients for a healthy pasta from the grocery store. Aim for things that allow you to cook enough for leftovers. You can always bring leftovers to work on your way out the next morning. Leftovers = One Free Meal = You Save Money.

3. Not telling your money where to go.

Money was meant for spending. What’s the point of having money if you don’t eventually spend it? Most of us understand this; it’s probably instinctual. We see money in our account, and we usually have an inclination to spend it. If you don’t tell every penny of your money where to go, there is a very good chance it will disappear. The crazy thing is, most of the time money disappears by small, seemingly insignificant purchases that add up, like ordering take out or eating fast food, magazine subscriptions, clothes, movies, etc.

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In a nutshell, the best thing to do with your finances is to calculate how much income you make and subtract the total amount of your bills and your expenses throughout the month. In your expenses, if you can, be sure to specifically allot a certain amount of “fun money” for yourself, which allows you go out and buy magazines and clothes, etc. If there is any remaining money after you subtract your expenses and bills from your income, put that aside for some savings goals.

4. Never making priorities in life to decide where your money should go.

It’s crazy to think that so many people rarely, if ever, stop and actually think about what things in life make us happy. It makes sense to spend money on the things that make us happy, right? Unfortunately, many people live on autopilot and continue to let their money slip away from them on small, insignificant things that ultimately don’t matter. Don’t make this mistake! Instead make happiness a priority and organize your finances so you can spend money on things that will be fulfilling to you. It doesn’t have to be expensive, either. It could be as simple as just paying a baby sitter so you can spend a few hours of quality time with your spouse.

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5. Starting a retirement account too late.

This is a very common mistake. It can be difficult to see the consequences of not investing in a retirement account. Because there is no instant gratification in saving for retirement, it might be hard to be motivated. Put simply, every day you delay saving for retirement you are hurting yourself. Because of the percentage rate of retirement accounts, your money actually compounds over time. Time is the key word here. If you start early you will actually be making good money by the time you retire. Dave Ramsey recommends to put away $250 a month. The best time to start an IRA account is literally as soon as possible. So start now!

6. Not paying off loans and debt as soon as possible.

This is the exact same concept as point 5, except the situation is reversed. If you have any debt at all, you want to do your best to pay that off as soon as possible. Over time, your account balance won’t be ‘making money’. Instead, you’ll be losing money. The longer you wait, the worse things will get. If you wait too long, debt can spin out of control. Don’t let this happen to you. Make it a priority to pay off any debt you have and avoid accruing any more if you can help it. The best way to handle credit cards is to always live below your means and pay the account balance in full at the end of every month.

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7. Not living within your means.

There is a misconception that if you have good-quality things in your possession, you feel good having them and you will feel good when people see that you have them. Not true! Driving a Toyota Corolla with little debt is better than having a Mercedes-Benz you can’t afford and tons of debt.

The truth is, there may be a legitimate amount of satisfaction from having good-quality things. In fact, there’s nothing wrong with having expensive things. The trouble comes when you overspend way outside your means in order to purchase something. The stress that follows is not worth it. There is no price to having a happy, stress-free life. The amount of satisfaction from owning something purchased beyond your financial means wears off after a while. At that point, all you are left with is the financial stress. Why invite troubles into your life? Remember: smarter is better than sexier!

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Tiffany Mason

Tiffany is a life coach empowering women to unleash their feminine essence & design a meaningful life & marriage.

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Last Updated on September 2, 2020

How to Set Financial Goals and Actually Meet Them

How to Set Financial Goals and Actually Meet Them

Personal finances can push anyone to the point of extreme anxiety and worry. Easier said than done, planning finances is not an egg meant for everyone’s basket. That’s why most of us are often living pay check to pay check. But did anyone tell you that it is actually not a tough task to meet your financial goals?

In this article, we will explore ways to set financial goals and actually meet them with ease.

4 Steps to Setting Financial Goals

Though setting financial goals might seem to be a daunting task, if one has the will and clarity of thought, it is rather easy. Try using these steps to get you started.

1. Be Clear About the Objectives

Any goal without a clear objective is nothing more than a pipe dream, and this couldn’t be more true for financial matters.

It is often said that savings is nothing but deferred consumption. Therefore, if you are saving today, then you should be crystal clear about what it’s for. It could be anything, including your child’s education, retirement, marriage, that dream vacation, fancy car, etc.

Once the objective is clear, put a monetary value to that objective and the time frame. The important point at this step of goal setting is to list all the objectives that you foresee in the future and put a value to each.

2. Keep Goals Realistic

It’s good to be an optimistic person but being a Pollyanna is not desirable. Similarly, while it might be a good thing to keep your financial goals a bit aggressive, going beyond what you can realistically achieve will definitely hurt your chances of making meaningful progress.

It’s important that you keep your goals realistic, as it will help you stay the course and keep you motivated throughout the journey.

3. Account for Inflation

Ronald Reagan once said: “Inflation is as violent as a mugger, as frightening as an armed robber and as deadly as a hitman.” This quote sums up what inflation could do your financial goals.

Therefore, account for inflation[1] whenever you are putting a monetary value to a financial objective that is far into the future.

For example, if one of your financial goal is your son’s college education, which is 15 years from now, then inflation would increase the monetary burden by more than 50% if inflation is a mere 3%. Always account for this to avoid falling short of your goals.

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4. Short Term Vs Long Term

Just like every calorie is not the same, the approach to achieving every financial goal will not be the same. It’s important to bifurcate goals into short-term and long-term.

As a rule of thumb, any financial goal that is due in next 3 years should be termed as a short-term goal. Any longer duration goals are to be classified as long-term goals. This bifurcation of goals into short-term vs long-term will help in choosing the right investment instrument to achieve them.

By now, you should be ready with your list of financial goals. Now, it’s time to go all out and achieve them.

How to Achieve Your Financial Goals

Whenever we talk about chasing any financial goal, it is usually a two-step process:

  • Ensuring healthy savings
  • Making smart investments

You will need to save enough and invest those savings wisely so that they grow over a period of time to help you achieve goals.

Ensuring Healthy Savings

Self-realization is the best form of realization, and unless you decide what your current financial position is, you aren’t heading anywhere.

This is the focal point from where you start your journey of achieving financial goals.

1. Track Expenses

The first and the foremost thing to be done is to track your spending. Use any of the expense tracking mobile apps to record your expenses. Once you start doing it diligently, you will be surprised by how small expenses add up to a sizable amount.

Also categorize those expenses into different buckets so that you know which bucket is eating most of your pay check. This record keeping will pave the way for cutting down on un-wanted expenses and pumping up your savings rate.

If you’re not sure where to start when tracking expenses, this article may be able to help.

2. Pay Yourself First

Generally, savings come after all the expenses have been taken care of. This is a classic mistake when setting financial goals. We pay ourselves last!

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Ideally, this should be planned upside down. We should be paying ourselves first and then to the world, i.e. we should be taking out the planned saving amount first and manage all the expenses from the rest.

The best way to actually implement this is to put the savings on automatic mode, i.e. money flowing automatically into different financial instruments (mutual funds, retirement accounts, etc) every month.

Taking the automatic route will help release some control and compel us to manage what’s left, increasing the savings rate.

3. Make a Plan and Vow to Stick With It

Learning to create a budget is the best way to get around the uncertainty that financial plans always pose. Decide in advance how spending has to be organized

Nowadays, several money management apps can help you do this automatically.

At first, you may not be able to stick to your plans completely, but don’t let that become a reason why you stop budgeting entirely.

Make use of technology solutions you like. Explore options and alternatives that let you make use of the available wallet options, and choose the one that suits you the most. In time, you will get accustomed to making use of these solutions.

You will find that they make it simpler for you to follow your plan, which would have been difficult otherwise.

4. Make Savings a Habit and Not a Goal

In the book Nudge, authors Richard Thaler and Cass Sunstein advocate that, in order to achieve any goal, it should be broken down into habits since habits are more intuitive for people to adapt to.

Make savings a habit rather than a goal. While it might seem to be counterintuitive to many, there are some deft ways of doing it. For example:

  • Always eat out (if at all) during weekdays rather than weekends. Weekends are more expensive.
  • If you are a travel buff, try to travel during off-season. You’ll spend significantly less.
  • If you go shopping, always look out for coupons and see where can you get the best deal.

The key point is to imbibe the action that results in savings rather than on the savings itself, which is the outcome. Focusing on the outcome will bring out the feeling of sacrifice, which will be harder to sustain over a period of time.

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5. Talk About It

Sticking to the saving schedule (to achieve financial goals) is not an easy journey. There will be many distractions from those who are not aligned with your mission.

Therefore, in order to stay the course, surround yourself with people who are also on the same bandwagon. Daily discussions with them will keep you motivated to move forward.

6. Maintain a Journal

For some people, writing helps a great deal in making sure that they achieve what they plan.

If you are one of them, maintain a proper journal, where you write down your goals and also jot down the extent to which you managed to meet them. This will help you in reviewing how far you have come and which goals you have met.

When you have a written commitment on paper, you are going to feel more energized to follow the plan and stick to it. Moreover, it is going to be a lot easier for you to track your progress.

Making Smart Investments

Savings by themselves don’t take anyone too far. However, savings, when invested wisely, can do wonders.

1. Consult a Financial Advisor

Investment doesn’t come naturally to most of us, so it’s wise to consult a financial advisor.

Talk to him/her about your financial goals and savings, and then seek advice for the best investment instruments to achieve your goals.

2. Choose Your Investment Instrument Wisely

Though your financial advisor will suggest the best investment instruments, it doesn’t hurt to know a bit about the common ones, like a savings account, Roth IRA, and others.

Just like “no one is born a criminal,” no investment instrument is bad or good. It is the application of that instrument that makes all the difference[2].

As a general rule, for all your short-term financial goals, choose an investment instrument that has debt nature, for example fixed deposits, debt mutual funds, etc. The reason for going for debt instruments is that chances of capital loss is less compared to equity instruments.

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3. Compounding Is the Eighth Wonder

Einstein once remarked about compounding:

“Compound interest is the eighth wonder of the world. He who understands it, earns it… He who doesn’t… Pays it.”

Use compound interest when setting financial goals

    Make friends with this wonder kid. The sooner you become friends with it, the quicker you will reach closer to your financial goals.

    Start saving early so that time is on your side to help you bear the fruits of compounding.

    4. Measure, Measure, Measure

    All of us do good when it comes to earning more per month but fail miserably when it comes to measuring the investments and taking stock of how our investments are doing.

    If we don’t measure progress at the right times, we are shooting in the dark. We won’t know if our saving rate is appropriate or not, whether the financial advisor is doing a decent job, or whether we are moving closer to our target.

    Measure everything. If you can’t measure it all yourself, ask your financial advisor to do it for you. But do it!

    The Bottom Line

    Managing your extra money to achieve your short and long-term financial goals

    and live a debt-free life is doable for anyone who is willing to put in the time and effort. Use the tips above to get you started on your path to setting financial goals.

    More Tips on Financial Goals

    Featured photo credit: Micheile Henderson via unsplash.com

    Reference

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