The ability to properly manage money is a particularly valuable quality in the context of the financial crisis, when the purchasing power of the population is reduced, inflation is rising, and exchange rates are completely unpredictable. In our gallery – common mistakes in money matters and the advice of financial planners on how to learn how to properly manage your own finances.
Mistake number 1. Do not keep a budget
A budget is generally the most basic thing in financial planning. Therefore, it is especially important to be careful when compiling it. To begin with, you should make your own budget for the next month, and after a while, get busy with the annual one.
Take your monthly earnings as a basis, subtract from it such regular expenses as paying for housing, transportation costs, then allocate 20-30% for savings or paying a loan, mortgages. The rest can be spent on life – going to a restaurant, entertainment, etc. If you are afraid that you can spend too much, limit yourself to a certain amount in cash in weekly spending.
Mistake # 2. Pay unnecessary bank expenses
If your bank charges you a fee or commission for additional services that you might not even be aware of, you should consider switching to servicing at another bank.
To do this, try to study in detail the offers of different banks in your city. Choose the bank that will require you to pay a minimum fee for your services. When you decide to change the bank, make sure that your previous account is not closed until the last payments on the account have been made.
Mistake # 3. Do not leave a will
If you have children, if you have co-owned housing, if you are a business owner, then you must have a will. Otherwise, in the future, when the question of inheritance arises, conflict situations may arise. Therefore, it is worth making a will, even if you are still far from retirement. And be sure to use the services of a good lawyer.
Mistake number 4. Do not take out disability insurance
“People don’t like to think about death and disease, that’s understandable. And those who think about it, think that the worst that can come is a sudden death, therefore they often insure life. But it’s more important to take into account the more likely scenario namely, the inability to make money, “says Sofia Bera. Be sure to take full life and health insurance. If you already have such insurance, carefully study the insurance conditions so that the contract provides options for different occasions. And of course, we hope , what insurance that you’ll never come in handy.
Mistake. 5. Do not insure your life
It is very important to insure life if you have young children or elderly parents that no one else can take care of. See different insurance options to avoid overpaying for the contract. Perhaps you will have enough insurance covering a period of 5 to 30 years, that is, the time when the children are still dependent. Explore the offers of different insurance companies. Use the services of an expert in financial planning – he can offer the best insurance option.
Mistake number 6. Use investment expert advice for financial planning
“A personal investment expert can help with matters of investing money, but he is not always able to see the full picture of your financial situation. So, he does not need to know if you have funds for additional long-term investments and whether you have postponed enough for unforeseen expenses” – says Sofia Bera. In addition, the investment expert will also not be able to advise which insurance is better to choose and in which bank to open an account.
Mistake. 7. To think only about the return on investment
“Usually when people plan to make investments, they only think about profit and don’t think that there may be losses,” says Harold Evenski, president of financial management company Evensky & Katz. He says that sometimes people don’t do basic mathematical calculations. For example, they forget that if in one year they lost 50%, and the next year they got 50% of the profit, then they did not return to the benchmark, but lost 25% of their savings. So think about the consequences. Get ready for any options. And of course, it is wiser to invest in several different objects for investment.
Mistake number 8. Believe ratings and forecasts
“People usually look for quick ways to make a decision,” says Evenski. Everyone loves to rely on ratings or read expert forecasts. But in today’s world, things are changing too fast. And today’s experts and ratings in one day can completely change. ” Therefore, do not expect that investment next year will behave the same as in the past. “Investors earn far less than their funds because they buy securities at their peak, and it is at this point that the recession usually begins,” says Evenski.
Mistake. 9. Do not pay credit card debts on time
Often, when using a credit card, people more easily make the minimum payments proposed by the bank (usually 10% of the total debt), feeding themselves the illusion that they have settled with the bank. And then a few months later they are surprised to find a huge amount of debt on the card, because in addition to the accumulated figure of the main debt for a long period, interest was calculated on it, which in credit cards is the highest percentage for loans. Therefore, pay the full amount of debt for each statement on the date provided by your bank, and not just part of it.
Mistake. 10. Have a credit card limit that exceeds monthly income
If a credit card gives us the opportunity to use the amount higher than our salary, we can succumb to the temptation and spend more than we actually can afford. Late payment of credit card debt can result in high interest rates. In this regard, contact your bank and ask to lower the limit on your credit card.