If there is one thing we are never taught in school, it is how to manage our expenses. We need to learn the hard way, i.e. through experience. This can lead to mistakes being made. Some financial mistakes are easy to rectify, whereas others can be very difficult to come back from. With that being said, in this blog post, we are going to look at the seven deadly financial sins that you need to avoid at all costs.
This is a contributed post and do not necessarily reflect the opinions of Meet The Harris Family.
1. Not having a budget
There is only one place to begin, and this is with not having a budget. It does not matter how much money you earn every month, everyone needs to have a budget. The good news is that this does not need to be complicated. It simply needs to state all of your incoming and outgoing cash per month. The benefits of this are widespread. Firstly, it will help you to make sure that you are not living above your means. It will also help you to budget for all of your expenses while determining how much money you are going to have available per month to put into your savings. This can then help you to reach different financial goals, for example, saving for a holiday or buying a home. Without a budget, you are pretty much guaranteed to leak money.
2. Not understanding your credit score
Another mistake that a lot of people make is failing to understand their credit score and then, furthermore, failing to check an maintain their credit rating. If you do not understand your credit score or what influences it, you are not going to be able to maintain a good score. Your credit rating is pivotal because it dictates whether or not you will be able to secure loans, mortgages and other financial products, as well as the rates you will get.
So, what does influence your credit rating? There are many different factors. It is not just about how much debt you have in monetary terms, it is also about the percentage of your available credit you are using. Your ability to make payments on time is one of the most important factors. In addition to this, the average age of your credit accounts and the number of credit applications you have made in the past six months are also taken into consideration.
3. Going without insurance
A lot of people see insurance as an unnecessary expense, no matter whether it is travel insurance or contents insurance. However, this is protecting you from financial destruction later down the line. Of course, you do not need to take out each and every financial product that is on the market, but there are some policies that are pivotal. Take car insurance as an example. If you skip this or go for insufficient coverage, you could find yourself on the wrong side of the law and you may need to fund the cost of a new vehicle. Insurance is there to protect your finances.
4. Taking out a loan without fully understanding it
Another error that a lot of people make is taking out a loan with fully understanding the terms and conditions. There are going to be moments for most people whereby they need to borrow money. Bonsai Finance can provide further information on this. Whenever borrowing money, it is imperative that you read the terms and conditions and that you understand each one of them. It is also vital that you are confident you can make the repayments each and every month.
5. Quitting your job without a plan
If you have decided that you are in a dead-end job and you want to make a career change, you should definitely do so. The moment you quit is an empowering moment and it can be the best thing you ever do, so long as you have a plan. You need to make sure you know what you are going to do next. The last thing you need is no job, no plan, and loads of bills to fund!
6. Putting off retirement savings
This is another common mistake and one that is very easy to make. After all, it is very difficult to think about the future when you are in the here and the now. No one wants to put money away for their retirement days when they have more pressing financial concerns. However, if you do not plan for your retirement, you are going to find yourself in a worrying position later down the line. Saving now, even in small amounts, enables you to make the most of the power of compound interest.
7. Getting behind on payments
Last but not least, this is arguably the biggest financial sin of them all. If you get behind your payments, you can find your finances spiraling out of control. Not only does this cause a lot of worry and a lot of stress, but it will have a negative impact on your credit rating. Delayed and missed payments will show on your credit report for six years. This means that your financial standing and ability to borrow will be restricted for over 2,000 days!
So there you have it: an insight into the seven deadly financial sins. Are you guilty of committing any of the financial errors that have been mentioned above? If so, there is no need to panic, but you do need to make changes sooner rather than later so that you can stop these issues from manifesting and getting worse. From getting behind on payments to quitting your job without a plan, these are the sort of mistakes you don’t want to be making when it comes to your finances.
