10 Financial Mistakes You Need to Stop Making
You’re probably pretty good at managing your money and avoiding financial mistakes, but it’s not always easy to recognize the mistakes you’re making.
It’s easy to get caught up in the day-to-day of living, or overwhelmed by all the options out there and what they mean for your finances. It’s also easy to get stuck in a rut where you keep doing the same thing over and over again—even if it’s not working for you.
The fact is, most people don’t make the best financial decisions for themselves. But there are ways to break out of that cycle and start making better choices—and this post is going to show you how.
But here’s the thing: if you want to improve your financial situation and start building wealth, you need to know what NOT TO DO when it comes to money matters. So today, we’re going to look at some common financial mistakes that people make—and how you can avoid them! This list is by no means exhaustive, but it’s certainly a great place to start!
Financial Mistakes You Need to Stop Making
Buying every new gadget that comes out
You know how it goes. You’re sitting at home, watching TV, and suddenly you see a commercial for some new product that sounds amazing. You think “man, if only I had that gadget, my life would be SO much better.”
And then the next day, there’s another ad that makes it look even better than before. And the day after that, yet another one. Before you know it, you’ve spent Kshs 10,000 on a brand-new gadget that does nothing but sit in your closet collecting dust.
The key here is to remember what your money needs to do for YOU: it needs to pay for essentials like food and shelter and insurance—and then maybe some fun stuff if there’s any left over. But it doesn’t need to go toward things that will just sit around in your house collecting dust or get lost somewhere between being put away and being used again.
I’ve written about this before, If you’re buying things just because they’re new and shiny, then you’re probably wasting your money. Instead, try waiting until after the first few months of release, when most of the bugs have been worked out and prices start going down. Then buy one if you really want to—but only if it will actually help make your life easier or more enjoyable!
Forgetting about fees and taxes
One of the biggest financial mistakes you can make is forgetting about fees and taxes.
Maybe you’ve just started investing, and you’re excited to put your money to work. You’re excited to get a little richer, faster. But what if I told you that instead of making more money, you’re actually losing it?
I bet you’d be surprised at how many people are guilty of this mistake—especially in the days of online trading.
When it comes to investing, there are a few things that will eat away at your returns: fees, taxes, inflation, and volatility. If you’re not careful with how much money these things take out of your account over time, they can really add up!
It’s easy to get caught up in the excitement of buying a new home and forget about the fees and taxes that come with it. But don’t let that happen to you! Here are some things to keep in mind:
-Fees: Lenders often charge fees for processing your loan, as well as closing costs, which cover the expenses associated with transferring property ownership. Be sure to check with your lender about what kind of fees they charge so you can budget accordingly.
-Taxes: You’ll also want to know what kind of taxes you’ll be responsible for paying on your home purchase. Depending on where you live, these could include real estate transfer tax as well as capital gains tax if you sell part or all of your home later on down the road.
Not having an emergency fund
Having an emergency fund is a big deal. It’s the difference between being able to handle an unexpected expense and having to take out a loan, or worse.
But what is this thing called an “emergency fund,” exactly? And how do you get one started?
First off, it’s not just about having money in a savings account. It’s about having enough cash on hand to pay for unexpected expenses that could happen in the next three months—like your car breaking down or getting laid off from work. You should also have enough saved up that if something worse happens—like a major illness or your house burning down—you can afford the immediate costs associated with those situations while you figure out how to pay for them later.
How much money should you have in an emergency fund? The number will depend on your current financial situation and how much risk you’re willing to take on as far as emergencies go. If you’re young and don’t have many financial responsibilities yet (like a mortgage), then it might be safe for you to only save up Kshs.100,000; but if you’re older with more responsibilities and less time before retirement, then saving Kshs. 500,000 might be more appropriate for your needs.
Borrowing to finance luxuries
Borrowing to finance luxuries like a new car or a vacation is a mistake that many people make. While you may have the best of intentions, it’s important to remember that borrowing money can be risky. You’re essentially taking out a loan and paying interest on it. If you can’t afford the payments, you could find yourself in trouble with creditors who will come after you and take your assets if they don’t get paid.
If you borrow money for something unnecessary and end up spending more than you can afford, it will only make things harder for you down the road. Instead of borrowing money for luxuries, consider saving up and buying them as soon as possible. That way, if something happens—like losing your job or an emergency medical bill—you won’t be left without any options because all of your savings were spent on unnecessary luxury items
Paying Off Debts with savings
I’m sure you’ve heard this before, but it bears repeating: Debt is never a good idea.
It’s tempting to think that if you have the money saved up to pay off a debt, then it’s fine to use that money for another purpose instead of paying off the debt. But this is a huge mistake!
Debt has interest attached to it, and if you don’t pay that interest off as well, then you’re just going to be paying even more money back than what you originally borrowed. Not only will this cost you more in the long run, but it also means that your credit score will suffer—and any time someone needs to check your credit history (like when applying for a new apartment or car loan), they’ll see your outstanding balance and low credit score.
Paying off your debts with your savings is a mistake
I know, it seems like common sense: if you want to pay off debt, then you just need to stop spending money on things that aren’t necessary. But if you’re trying to do that by withdrawing money from your savings account or raiding your retirement fund in order to pay off the bills, then you’re doing it wrong.
You see, when you pay off debts with savings, what happens is that you’ve just moved the debt around. You’ve swapped one debt for another, and now you have less money in your bank account—and probably also less equity in your home if it’s all going into a mortgage. You may end up living paycheck-to-paycheck again, or worse; if someone loses their job and has no savings, they could be left with no income at all! So don’t be tempted by the easy route of taking money out of savings and paying off debts—you’ll end up in more trouble than before.
Not having a budget
If you’re not tracking your spending, it’s hard to know where your money is going. That’s why setting up a budget and sticking to it is one of the most important financial habits you can develop. And it’s not as hard as you might think—here are some easy steps to get started:
1) Track your spending for at least a month or two so you know where your money is going, and set aside some time to sit down with a pen and pad to make a list of all the bills that need to be paid every month excluding rent/mortgage.
2) Set aside some time each week or so to review this list and make sure there aren’t any unexpected expenses coming up that will throw off your budget. If there are any big ones, make sure they’re included in your plan!
3) Consider using an app like Mint or Personal Capital to keep track of your spending over time. These tools will give you an idea of how much money is going where—and how much you have left after all those bills are paid.
Not including the future in your plans
If you’re an entrepreneur, or if you have your own business, it’s important to make sure that you’re including the future in your plans.
This is important because it helps you build a financial plan for the long term. If you don’t consider what could happen in the future, then you might find yourself in a situation where things don’t go as planned—and then you’ll be stuck with no way out.
You might think that this is something that only happens to big companies, but it can happen to anyone who doesn’t have a proper plan for how they want their business to grow over time.
We all know that it’s important to plan for the future, but it’s easy to let that slip out of the way when we’re caught up in the day-to-day. But if you’re not planning for the future, you could end up getting stuck with a situation you hadn’t planned on. For example, if you’re planning on buying land or house and having children, but then you find out that one of those things isn’t going to happen—what then? If you haven’t thought about what happens if something like this happens, then it could be a disaster.
The solution? Plan for the future, even if it doesn’t seem all that likely right now. Your plans may change over time—and they certainly will—but at least you’ll have an idea of what might happen and how to deal with it if they do change.
Using your credit card for everything
In the past, people had to carry around cash and pay with cash. Now we have mobile loans like Fuliza and credit cards that let us buy whatever we want without even having to think about it. It’s easy to get carried away and start using your credit card for everything, which can lead to some serious financial problems down the line.
If you’re tempted to use a credit card for every little thing you buy, try remembering this: a credit card is not free money—it’s borrowed money that you have to pay back eventually. And if you use it too much, it can become impossible to pay back all at once!
So if you want to avoid getting into trouble with debt in the future, try keeping track of how much money you spend on bills, groceries, gas… whatever! Then calculate how much extra income each month would be required just so that you could cover all of your expenses without taking out any more loans or using any more credit cards than necessary. This will help keep you from sliding into dangerous territory when it comes time to balance your checkbook!
Spending too much money on housing
If you’re spending too much money on housing, you might be making one of the biggest financial mistakes you can make.
And we’re not just talking about paying too much for a house or apartment. We’re talking about spending too much on rent or mortgage payments, or even paying too much in interest on your home loan.
Why is it such a big deal? Because while housing costs are one of the most predictable parts of your monthly expenses, they also tend to be the biggest. And if you’re spending more than you need to, that means less money available for other things—like retirement savings, college funds for your kids, or even just some extra cash to take an impromptu vacation with your family.
The important thing is not to let yourself get caught in this trap! If you’ve gotten into a situation where you’re paying more than what feels comfortable for your budget, don’t panic! Instead, take some time to figure out how to cut down on those costs and start saving more money for the things that matter most to you and your family’s future happiness and security.
Making only the minimum payment on your debt
It’s easy to get into a rut, and then stay there because it feels comfortable. But if you’re making only the minimum payment on your debt and have been doing so for a while, you’re really just digging yourself into a hole. Not only are you paying more interest in the long run, but you’re also missing out on all the extra money that could be going toward other things—like saving up for a vacation or retirement!
If this sounds like something you’ve been doing, take a step back and look at what else you could do with that extra cash. You’ll be surprised at how much closer to your goals—and how much happier—you’ll feel once you start putting some of those dollars toward them!
Your financial future is in your hands. You don’t have to be a victim of circumstance, or let other people make choices for you. You can build the life that works best for YOU, and if there are mistakes made along the way, don’t let them get in the way of your progress.