No one is perfect and we all make mistakes. This can be of particular importance if the errors impact your finances, especially if you repeat them. In a recent discussion in an online forum people discussed common money mistakes you should avoid doing multiple times. Here are 13 of their most common responses.
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1. Spending Money on Someone You Meet Online
Meeting intriguing new people online is nothing new. However, proceed with care before splurging on someone you’ve met online. Genuine connections are possible, but spending much money on someone you have yet to meet is not wise. Avoid spending, especially without solid assurances regarding authenticity and trustworthiness.
2. Patronizing Shady Overseas Vendors
Globalization has many perks, but that doesn’t mean there are no risks. There are many reputable online vendors globally; however, it’s more advisable to patronize local businesses or others within your country. The allure of lower prices might hide subpar quality or potential scams.
Research, investigate reviews, and use established platforms to minimize the risks. One commenter shares how they bought “things from Portugal multiple times and never saw them delivered nor compensated. I’m never buying anything from there again.” That’s just an example of what could go wrong.
3. The Pitfalls of Timeshare Investments
To start, let’s demystify timeshares. Timeshares offer the prospect of owning a vacation home for specific periods annually, spanning a designated range of years. The reality is a timeshare is not an investment but a vacation arrangement.
Also, it constitutes an illiquid asset likely to depreciate with time. You shouldn’t “invest” in a timeshare for several reasons. They have no investment value, it’s nearly impossible to resell them, they come with rising annual maintenance fees, and you’re still paying for them even while someone else uses them.
4. Overspending on Video Games
Video games are a great way to have fun, relax, and engage your mind, but they aren’t investments and shouldn’t cost you so much. Blowing money on virtual indulgences like in-game purchases and downloadable content can accrue substantial costs.
Instead, consider setting limits, exploring free alternatives, and knowing the difference between genuine enjoyment and fleeting urges.
5. Making Financial Commitments You Can’t Keep Up With
Making financial commitments like buying a high-end vehicle or a boat demands a realistic assessment of your capabilities. One of the fastest ways to jeopardize your financial stability is buying something that’ll cost you even more in maintenance and repairs.
Additionally, whether loans, subscriptions, or contracts, constantly evaluate your capacity to meet obligations. Avoid overextending yourself to avoid spiraling debt and undue stress. Opt for commitments that align with your means and long-term plans.
6. Not Budgeting
Budgeting isn’t just a practice; it’s a necessity. Neglecting this vital aspect of financial management will lead to avoidable hardships. A comprehensive budget helps you to allocate funds efficiently, manage expenses, and work toward financial goals.
Whether tracking daily expenditures or planning long-term investments, a budget is your compass toward fiscal success. Speaking of not budgeting, one commenter reveals, “Basically, during the majority of my twenties, I made too much and have little to show for it.”
7. Neglecting Professional Services
One blunder that could cost you is ignoring the need for professional expertise. If you own a business, you should know the limit of your understanding and when or where specialized guidance is essential. For instance, when your business gains traction, you’ll need a lawyer to help you with legal matters.
An accountant will provide insights into your financial records and tax obligations. Professionals will help you stay updated on policies that could build or crash your empire.
8. Hiring Cheap Labor
This is another one for business people. Hiring cheap labor may cost you more in the long run, no matter how attractive it may seem.
Employing cheap labor means less expertise, dedication to your business, and overall efficiency. You don’t want your employees and business partners constantly looking for better opportunities elsewhere.
9. Not Having Emergency Funds
What happens if you exhaust your earnings without stowing away funds for unforeseen circumstances? If nothing else, unexpected events like job loss, medical expenses, and repairs will overwhelm you. Situations like these usually lead to more debt without a safety net.
Apart from setting aside a portion of your income for contingencies, trimming unnecessary expenses and impulsive purchases will relieve the burden of the unexpected. It’s best to use an online bank, like CIT Bank, that pays a competitive interest rate and has minimal, to no, fees.
10. Being Late With Credit Card Payments
We all run into circumstances where we’re short on funds and it’s difficult to make credit card payments. That causes a variety of problems.
First, you will incur a late payment fee. Second, it can cause your credit score to decline. That may seem harmless in the short run. However, if you plan on needing to borrow money in the future it will likely result in a higher interest rate.
If at all possible, don’t skip those payments.
11. Neglecting Investments
You’ve heard this before. Investing is the most reliable way to grow wealth, improve income over time, and achieve financial freedom. Hundreds of investment opportunities are tailored to your risk tolerance and financial capability.
To initiate your investment journey, you can choose low-risk options like agriculture, stocks, or even cryptocurrencies. Remember, though, that low-risk investments yield conservative returns. Commercial real estate is one of the most lucrative options for those with greater resources.
12. Working With Blind Optimism
Confidence and optimism are essential for progress. Yet, your conviction shouldn’t be based on unrealistic predictions or delusions. Effective decision-making and problem-solving require comprehensive assessment from various perspectives, not false hope.
13. Choosing Desires Over Needs
This is one of the most common mistakes, especially among the younger generation. Whether you want to buy a home, launch a business, or work on your finances, you must learn to ignore the pull of personal desires over necessities.
Of course, it’s okay to splurge on luxuries if you can afford to. But you shouldn’t yield to your desires before attending to your needs. Pro tip: Create a list of your wants and needs in order of priority. Before spending on your wishes, take care of all your needs. Remember to check your list often to keep track of what matters most.
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This thread inspired this post.
I’m John Schmoll, a former stockbroker, MBA-grad, published finance writer, and founder of Frugal Rules.
As a veteran of the financial services industry, I’ve worked as a mutual fund administrator, banker, and stockbroker and was Series 7 and 63-licensed, but I left all that behind in 2012 to help people learn how to manage their money.
My goal is to help you gain the knowledge you need to become financially independent with personally-tested financial tools and money-saving solutions.
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