7 Biggest Financial Mistakes to Avoid in 2020
When you’re starting out, you might take some wrong decisions related to your finances.
But it is quite imperative to remember that the decisions that you take today and habits you form can significantly affect the rest of your financial life. Let’s learn the 7 biggest financial mistakes that you can make with your money and how to avoid in 2020:
1. Using Credit Cards for Day-to-day Expenses
When you utilize your credit cards to pay for your everyday expenses, chances are high that you can accumulate a huge amount of debt within a very short span of time. In fact, few studies show that many people tend to spend a huge amount of money when they’re paying with credit. Thus, you need to stop utilizing your credit card for day-to-day expenses and start following a budget to manage your finances in a smooth manner.
2. Getting Behind on Your Payments
When you fall behind on your car and house payments, you might create a cycle that is very difficult to break. In such a case, you will end up paying late payment fees and other charge each time you miss paying payments. In addition to this, it may take a hit on your credit score that can make it tough for you to opt for credit card, personal loan, and any other type of loans in the future.
Thus, the very first thing that you need to do is to pay your late payments and then address those spending, budgeting, or income issues that have caused you to fall behind. After that, stick to your budget religiously so this does not happen again in the future.
3. Not Making a Budget Plan
When you don’t have an appropriate budget plan, you don’t have control over your finances. Not making a budget plan month after month simply means that you not managing your finances in the right manner.
Without making a budget plan, you can make decent money and still find it difficult to get by. It can tough for you to meet your various financial goals when you don’t have an apt budget plan in place. So, take out some time to create a budget plan and stick on it every month.
4. Not Having an Insurance Policy
It is not sufficient to have an only office-provided medical insurance policy because you might lose it when you switch your job. That is why, it is important to have your own independently-bought medical insurance policy that can cover you and your family members against all the medical emergencies. Also, if you are an individual with dependents such as spouse, children, or parents who are financially dependent on you, then you must also opt for a term insurance plan to protect your loved ones financially even in your absence.
5. Not diversifying your Investments
Financial experts always suggest that invest your hard-earned money in a mix of assets. This will assist you to create all types of an investment portfolio that provide you decent return in any circumstances. For instance, while returns from the stock market are going down, gold is performing very well. When interest rates go down, long-term bonds perform very well. Thus, it is very important to invest your money in the right mix of investments, equity, gold, real estate, small savings, bonds, etc. to get better returns.
6. Not Maintaining Liquidity
It is suggested that you should keep at least 3 to 6 times your monthly income at all times as your emergency fund. It would be great if you can go up to 12 times. This money should be kept in easily accessible fixed deposits that you can easily withdraw during a financial crisis such as health issues, loss of income, urgent repairs, and much more. This will help you to ensure that you don’t have liquidity issues and don’t have to dig in on your expensive debt for your liquidity requirements.
7. Not Having an Apt Financial Plan
When you don’t have an appropriate financial plan, you will not able to meet your financial goals successfully. As your financial plan can assist you to make sure that your spending matches all of your priorities.
Your financial plan will enable you to decide when you should start investing your hard-earned money, how much money you should save for your retirement and some other financial goals. So, take out some time to make a financial plan in order to manage your finances.
In a Nutshell
So, all the aforementioned are some of the biggest mistakes that you should avoid in 2020. Avoiding all these mistakes will help you to take your finances on the right path.