7 Common Mistakes with Money People Commit

Home » Blogs » 7 Common Mistakes with Money People Commit

Money serves as the main medium of exchange, letting individuals purchase goods and services to meet their requirements. For a better future, you need to ensure you have enough savings to tackle any kind of financial emergency and, thereby enjoy a quality life. 

This is why you should stay cautious and avoid common mistakes with money. Nevertheless, you first need to be aware of the mistakes to avoid those in the future. 

Mistakes with Money

Check out the most common mistakes that can cause financial stress in the future:

• Saving Inadequately

Many people just spend their monthly income without thinking about the future.  They do not save money for their unplanned expenses. 

The rule of thumb is that you develop a contingency or emergency fund by keeping aside a certain portion of your monthly income. It will help you stay prepared for unexpected but necessary expenses like medical treatment. You can even sustain your life and livelihood in case of your monthly income becomes lower.

• Not Planning a Budget

One of the major mistakes with money is spending without any budget. A budget lets you spend your money in a disciplined manner. It is a practice of organising all the potential expenses in a month so that you have better control over your monthly income and save a fixed amount.

• Staying Drowned in Debt

You can find people who have the habit of taking loans to make their big-ticket purchases and end up engaging in multiple loans and credit card bills. Such habits can lead you to a debt trap, making it very difficult to get out of the burden of a loan.

You should borrow judiciously and only when it is important. Further, if you already have a loan, you should ensure your debt-to-income ratio does not go beyond 35%.

• Investing in Instinct

If you do not know how the stock market works and when the prices of shares grow, it is better if you do not invest. It would be a mistake with money if you invest based on your speculations, not after a proper analysis. You may lose your hard-earned money if the stock you invest in does not perform as per your speculations. If you are a novice in the stock market, it is better if you take the advice of experts regarding investment or keep your money in mutual funds. 

• Not Developing Financial Goals

You also give time to think about big-ticket but necessary expenses lying ahead in both the near and distant future. You may have to buy or build your own house or pay the tuition charges of your child. If you identify them, you can develop a plan to save your money accordingly and bear those expenses without facing much hardship.

• Spending on Luxurious Items

Building expensive hobbies and spending on luxury items are also some major mistakes with money that you need to avoid immediately. There are people who spend large amounts of their income to spend on luxury items like iPhones. They upgrade the smartphone whenever a new model launches, even if they have to purchase it on finance. If you build such a habit, it will be way difficult to save money for the future. 

• Having no Insurance Coverage

You should never see the premium of your life and health insurance policies as a burden and barrier to your goal of saving money. If you do not yet have the coverage of these policies, it is time for you to take them. A health insurance policy will help you save a lot by covering your hospitalisation and other medical bills. By purchasing a life insurance policy, you can ensure the financial interest of your family is protected in case of your premature demise. Your family will get a lump sum as a death benefit. 

Having a sufficient amount of savings for the future is necessary to ensure a financially secure future. It helps you achieve your financial goals and enables you to access the conveniences. You can get proper healthcare, buy necessary things and maintain leisure activities only if you have enough money at your disposal. Without rectifying mistakes with money, one can neither save enough nor spend a quality life. 

FAQs on Mistakes with Money

1. What does the 50-30-20 rule of money tell?

You can follow the 50-30-20 rule of budgeting. This rule suggests that you should ideally allocate 50% or half of your income to make the necessary expenses, such as purchasing food items, paying rent, etc. 30% of your total monthly income should go towards your ‘wants’ or to fulfil your dream expenses. You should keep aside the rest 20% of your income for saving money.

2. What are the major financial risks that one should be aware of?

Issues with income, expenditure, investment, and repayment risks are 4 major financial risks. Income Risk: Occurs due to issues like disability and death. Expenditure Risk: Spending in a month can become more than income due to unexpected crises. Investment Risk: Returns on investment may not be as per your expectation. Repayment Risk: Difficulties in repaying your loan in the future.

3. Where can I keep my money to secure a return more than the rate of inflation?

To ensure your money grows higher than the rate of inflation, you can invest in bonds, securities, mutual funds, gold, and stocks.