In these days of financial complexity, building a secure future without a plan could be compared to building a house without a blueprint.
If the shear volume of financial advice about saving, investing, insurance, estate planning, etc. has you in a clueless stupor, you are not alone. What passes for financial planning for many Americans is paying bills when they come due and beyond that, pretty much just hoping for the best.
There are several common money mistakes that people make. Avoiding these mistakes and deciding what your financial goals are, will help you begin to build a better foundation for your financial future.
Not having an emergency fund: Yes, a poll by the National Foundation for Credit Counseling found that only 36% of respondents had an emergency fund of at least $1000. This is good news for the banks when you are forced to go to them for a loan, but not for you if you ever wish to build some financial security. One of the first plans you should make to start getting your financial house in order is one that will enable you to never depend on banks or loan companies for money. Do not wait another day to implement that plan because throwing money away on high interest payments will never lead to financial wealth.
Buying a new car with a loan: There is a reason that banks have somewhat attractive interest rates for new car buyers. They want to entice you to buy a depreciating asset that you cannot afford. Some estimates say that a new car loses up to 30% of it’s value after one year, and sometimes as soon as you drive it off the lot. That sounds like great business for the car dealers and the banks, for everyone but you. If you can’t afford to pay cash for a car, then you can’t afford to buy it.
Not paying your credit card charges each month: Another way you are making everyone else richer, but yourself.
Not having automatic deductions to your 401k: Failing to prepare for retirement as early as possible in order to take advantage of a long-term investing horizon is also a common mistake people make. And yet the earlier you begin these contributions, the more impact by far they will have on your bottom line years from now. And if you are not contributing the maximum allowed for matching funds then you are throwing away free money.
Not having automatic savings deductions: Any amount of savings, however small, when consistently put aside will eventually add up to a useful amount. If you pay rent doesn’t it always seem like before you know it the month is over and you’re paying rent again? This aspect of how time seems to fly could be working for you too. If you have money automatically going tü savings, before you know it another month is over and your savings is growing.
Unless you plan carefully and save consistently for a bright financial future, that future could turn grim, in much the same way that the dream house built without a blueprint could unexpectedly turn into a hovel.