May
21
Issue #6: 8 Common Mistakes in Money Handling
Filed Under Financial Freedom Through Financial Planning |
(Word Count: 762 – reading time 3.0 min)
I recently attended a really great seminar about financial planning, money management, and retirement planning. It was interesting how the speaker started out the seminar, because instead of jumping into the key points of the discussion, he started discussing the most common mistakes people make with their money. The basic point is that you cannot really effectively save, plan, or use your money if you continue to make the same mistakes with your money.
Here are the eight most common mistakes made and how to avoid them.
Mistake #1
The first most common mistake people make with their money is to pile up their debt. When you pile up debt, you create an enormous financial setback for yourself that is both extremely difficult to get out of and which also costs you more money in the long run through accrued interest. It is extremely important to use your credit cards responsibly. Building good credit can help you qualify for lower interest rates on loans, but charging your cards to the max and not paying them off destroys your credit and puts you deeper into debt. Pay in cash instead to keep spending within your means.
Mistake #2
The second most common mistake people make with their money is not making sure that they are fully covered by their insurance. The financial fallouts caused by emergency insurance situations can be devastating. Be sure you stay fully covered with auto, homeowners (or renters), health care and disability insurance at all times. If you have a family, you should also have life insurance coverage.
Mistake #3
The third most common mistake that people make with their money is to put-off saving and investing. When it comes to saving and investing your money, time can be your best friend. The purpose of saving and investing your money is to take advantage of compound earnings. The longer that you save and the earlier that you start investing the faster you can reach your financial goals. Waiting just makes it much harder to meet the same goal. So find a way to start saving and investing today.
Mistake #4
The fourth most common mistake that people make with their money is also not setting aside a small amount of money for an emergency fund. In addition to your saving account, you need to set up a small slush found that is only used for emergencies. This will help you to avoid taking money out of your savings and regular checking account when an emergency situation arises. Try to contribute the same amount to his account each month, just as you do with your normal savings account.
Mistake #5
The fifth most common mistake that people make with their money is missing their employer match into their long term saving account. An employer contribution to your EPF is “free money”! If your employer offers EPF, make sure you take full advantage of it. Contribute enough money into your EPF by your employer is crucial or else you are giving away free money.
Mistake #6
The sixth most common mistake that people make with their money is not setting up automatic payments for savings or investment plans. When you base your investments or savings contributions on the amount of money you have at the end of the month, you will get nowhere fast. Instead, set up an automatic plan that takes money out of every paycheck - and you will be surprised how quickly your accounts will grow on their own.
Mistake #7
The seventh most common mistake that people make with their money is co-signing for loans. The next time a friend or family member asks you to vouch for them on a loan, politely run the other way. When a bank requires a co-signer, it’s because the person applying has no credible history of paying debts on time. If the person who received the loan is late on payments or simply doesn’t pay up, you’ll be responsible - and this will damage your credit.
Mistake #8
The eighth most common mistake that people make with their money is getting “upside-down” on their car loans. This happens when people purchase and finance new vehicles they cannot truly afford. Since new cars depreciate quickly, and your finance term may extend longer than 5 years, you may owe more on the loan than the car is worth — which is called being “upside-down” on the loan. To get the most for your money, put at least 30% down or, better yet, buy used cars and drive it till it dies.
By Jeremy Vohwinkle (Registered Financial Planner)