None of us are perfect and sometimes we make mistakes, including in our finances. However, with the abundance of knowledge we have now, it’s wise to learn from other people’s mistakes and avoid it ourselves. That’s what we’re here for. We’ll talk about some of the most common financial mistakes people make and avoid doing it.
Before, we have made a simple guide to money and finance which cover the basic and the things you should do with your money but now we’ll dive on the things you should not do with your money.
Disclaimer, these aren’t substitute for professional financial advice. We still recommend you to get a financial advisor if you’d like to take it a step further but these will definitely help you in some ways.
1. Saving Everything
If you grew up like us, chances us you’ve heard your parents telling you to save your money. However, there’s a lot of problem with that. Sure, saving money is great, but the value of the money you save will depreciate overtime thanks to inflation.
Instead of just saving absolutely everything, you need to invest your money. That way, your money is not static and losing its value. It’s being used to generate more money, which is something you want.
2. Not Investing Early
Another common financial mistake people make is not investing early. People think they have time so they postpone their investment plan and wait.
The problem is, you’re going to miss out on compounding if you continue to wait on your investment. Start investing now. It doesn’t have to be a huge amount. You can keep aside ten to twenty dollars each week and it will compound overtime.
3. Investing in Something You Don’t Understand
This is actually more common than you think. A lot of people invest in things they don’t understand just because everyone else is doing it and make some profit out of it. You are setting yourself up for failure if you invest blindly. Do your own research, find out what’s actually working and not.
Don’t just follow the trends, but do your math and calculate every possibilities. A real life example of this is crypto, people just invest in it and it worked for a while, but then the crash happened and a lot of people were losing a lot of money. Some will be fine but not everyone has the capability to risk the amount they were losing.
That’s why, only invest in something you fully understand.
4. Maxing Out the Credit Card
The spike in consumerism has definitely triggered this. People are maxing out their credit card as if the money is their own. What usually happen is they are unable to pay the credit on time and it affect their credit score negatively.
If you live in the US, we’re sure you understand the consequence of having a bad credit score so we don’t have to explain further. Only use your credit card when you have the money in your balance so you can always pay it back on time and improve your credit score.
5. Take Loans for Liabilities
Taking loans for liabilities such as a new car, a new phone and anything that won’t generate income for you is a terrible move. The debt comes with interest and if you’re using the loan to start a profitable business, the profit will cover for the interest as well.
However, if you are using the loans for liabilities, you have to think of ways to generate extra income to cover up that loans and it’s a huge pain. Also, you can’t keep on paying on minimum interest, always pay more than the minimum amount so you can pay your debt faster.
6. Wait Years to Put Down a Mortgage
Some people will wait for years to put down a mortgage and this is acceptable if you haven’t found the property you are looking for or lack the initial fund for down payment. However, if you have set your eyes on a house and already have some money for the down payment, get that mortgage.
Why? Because the longer you wait, the higher the mortgage fee would be.
What we would recommend is to get the mortgage and rent the house for a year or so. This way, the tenant is the one paying for the mortgage fee and when it’s fully paid, you can move in there and enjoy your new house.
7. Being Too Frugal
We personally hate this one with passion. People think they are doing good and saving money by being frugal. However, this is far from the truth. Being frugal and always buying cheap things can often cost you more in the long term.
If you’re buying a low quality, cheap item because it’s cheap, you will most likely have to replace it later.
Quality items cost more, but they are better in the long term. Another example, if you’re having a mild toothache and refuse to go to the dentist to have it checked, you may end up with serious cavity that cost more later.
If an item is broken and you refuse to replace it, you may get an injury from using it.
It’s better to be moderate in your spending. Be clever, but not frugal.
8. Buying a House in A Bad Neighborhood
Yes, your neighborhood matter. Some people think they are saving money by buying a house in a bad neighborhood but if something goes south, the cost of the damage will be worse.
Also, they don’t contain good resell value. What you want to do instead is to buy the more affordable house in a good neighborhood. You may have to renovate a few things, but at least you know that the house value will increase overtime.
You can also sleep peacefully at night knowing you have security and everything else a bad neighborhood couldn’t offer. Being in a great neighborhood also helps you to engage with better set of network, which is always a plus.
9. Putting All Eggs in One Basket
Last but not least, a mistake people make is putting all of their eggs in one basket. Only having one source of income or one kind of investment.
This is extremely risky because if you lose the job or the investment crash, you lose everything. Instead, you need to strategize. Think of different ways to earn income.
Always look for a side hustle or passive income. When making investments, diversify your portfolio so if one of them goes south, you still have backups and won’t end up going crazy.
10. Buying Stocks on High Price and Sell on Minus
When we write it this way, you’ll think who would do that? Well, a lot of people do. When a stock is going well and rising, they think they should buy it now before it gets more expensive but then when it crashes, they panic and start selling on minus.
The truth is, when the stock price is low, you may want to buy more.
This sounds counter-intuitive but it makes a lot of sense. For big players, a stock crash is like black Friday sales. Of course, you can’t do it with absolutely everything.
Be strategic on the stocks you’re choosing, but if it’s in a sector that you know will rise again after a crash. Have faith and get the stock.
Those were some of the most common financial mistakes people make. Now that you know them, avoid them.
