Monday, September 26, 2011

Save Money By Not Making Dumb Financial Mistakes

One of Dave Ramsey's great quotes is "A budget is people telling their money where to go instead of wondering where it went." Being on top of your money is the only way your ever going to have any. In life our money seems to want to sneak away. We let this happen by not paying attention to where it's going.

There are common mistakes we all have made when handling money. I see them repeated over and over again. I have listed just a few, there are many more.

Spending More Than They Make.

This is the most obvious mistake yet it's the most ignored. If I could give just piece of advice to people looking for the one thing they could do to improve their finances, it would be live on less than you make. So if you find yourself struggling to make ends meet, take a hard look at your budget and begin living on less than you make today.

Keeping Up With the Joneses.

A lot of times it doesn’t matter how much money we make, we still want to keep pace with our neighbors or friends.This is a sure way to get into trouble. What’s ironic is that many times those same people we’re trying keep pace with and impress are buying things they can’t afford with money they don’t have either. Think of how much better off we’d be if we’d just learn to be content.

Missing payments on Credit Cards and other Bills.

In the past I’ve been late on credit card payments. In today’s world of online banking, scheduled payments and online calendars, there is no excuse for this. Missing a payment and/or being late can really cost you. Many cards are now charging $30+ dollar late fees, and if you have a low interest rate and miss just one payment, your rate can increase significantly.

Don’t make this mistake. Use online banking and schedule your payments monthly.I would suggest scheduling the minimum payment at the beginning of the month to insure it gets paid. If you can pay more on it later in the month, than either bump up the minimum or just schedule another payment. Many online banking sites now have payment reminders as well that will send you an email x number of days before the bill is due.

Not Having an Emergency Fund.

An emergency fund, next to spending less than you make, is probably one of the most significant things you can do to change your financial life. It allows you to stay on budget, avoid using credit cards, and reduces your stress level when it comes to money. Just knowing that if something goes wrong or that something unexpected comes up and you can financially cover it gives you a tremendous peace of mind.

Not Saving for known upcoming expenses.

Upcoming expenses are expenses you know you will have to pay. For me, these are things like: property tax, Christmas, home owners insurance, and yearly home owners association dues. You may have others. These are expenses for which you know the amount and you know when you will need to pay them.
In the past, we always intended to set money aside and just never did, thinking we would have the money when we needed it. We seldom did, so we ended up using a credit card to pay for it. Dumb, dumb, dumb.

The concept is simple, take the expected payment, divide by the number of months between now and when it’s due, and begin setting this money aside. I set-up an automatic transfer from our checking account to our emergency fund.

Purchasing new vehicles.

New vehicles lose a large portion of their value as soon as you drive them off the lot. I highly advise that you let someone else take the initial hit on a new vehicle, it can save you a tremendous amount of money. I recommend buying something 2-3 years old. Generally they are still under warranty, in very good condition and just as reliable as a new car.

My View.

If people are asked about their future, they can usually paint a fairly happy picture. They will be retired, their bills will be paid off, and they will roam the world while living off their perfectly adequate nest egg. The reality is that many individuals have no plan for the future. They may have desires, but their current habits will never get them to their desired state of living in the future.

Does a financial plan guarantee success? Of course not. However, the mistake that many people make is not having any sort of long-term financial strategy and hoping that things will simply work out somehow. Thinking that way may reflect the positive outlook of the individual, but it may also mean that they will someday experience disappointment at their lack of serious financial planning.




1 comment:

  1. Everyone really should keep their financial obligations in mind when it comes to saving. I know it's hard to do, but it can be done. At http://www.mutualfundstore.com/financial-obligations-debt, there are some good tips to help get those debts down.

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