…and Henry screamed this was a costly financial mistake! Henry is a businessman known for his prowess in selling anything that he decides to sell. He has an eye for the market and was an envy of many persons that were in the same line of business as him.
In the course of time, it happened that he had an investment to make into another line of business with a return on investment (ROI) that seemed very promising. He did invest the money but unfortunately for him, there were a number of financial considerations and decisions that he should have made before doing that he didn’t do which cost him quite a lot. Henry learned from this but the hard way.
In this article, we’ll keep you abreast with financial information and to see that you are financially free that we are bringing to you the 15 Biggest Financial Mistakes People Make so that you wouldn’t make the mistake Henry made or any other financial mistake as you would get to know in this write up. So, stay with us!
Table of contents
- What Financial Problems Do People Have?
- What Are Some Of The Worst Financial Decisions?
- How To Recover From Bad Financial Decisions
- Most Common Mistakes In Managing Money
- What Financial Mistakes Should I Refrain From?
- What Are The Biggest Financial Mistakes People Make In 2021?
- 1. Copying other Investors
- 2. Acting on unprofessional advice
- 3. Not knowing where are you Spending
- 4. Not having a monthly budget
- 5. Insurance Policies in Children name
- 6. No Goal-Based Investment Planning
- 7. Not earning money in your free time
- 8. Lending money to friends when you can’t afford it
- 9. Not having and maintaining an emergency fund
- 10. Not taking out insurance
- 11. Having an unrealistic financial goals
- 12. Not negotiating a salary when starting a job
- 13. Swiping credit card for all big & small ticket expenses
- 14. Having a skewed investment asset allocation
- 15. Paying more tax than you should without realizing
- Frequently Asked Questions
- We Also Recommend
What Financial Problems Do People Have?
Financial problems are those issues/problems that individuals have that make them unable to pay debts over the short or long term.
These financial problems/indebtedness complicate financial management and limit purchasing power. The difficulties associated with finance become a source of stress until all debts are paid.
For debt reimbursement to take place, a solution just is developed to take care of financial problems.
Some of the financial problems that people have include:
What Are Some Of The Worst Financial Decisions?
In making financial decisions (building wealth, saving), there are a number of excuses you can come up with as to why you are yet to do certain things but that doesn’t speak well of financial maturity.
You can also probably come up with a long list of your worst financial decisions. And perhaps the excuses for the steps you haven’t taken are tied to these decisions you regret.
In order not to be a victim of the worst financial decisions, you are to ensure that you start learning about financial knowledge as early as possible. The good thing about money is that not minding the wrong financial decisions you might have made, the room for improvement is always open when it comes to money.
In addition, you mustn’t be the one to make these mistakes so as to learn from them. There are many opportunities to improve financially and one of the ways is to learn from the mistakes of others.
Some of the worst financial decisions you can make and remedies to them include
1. Not saving any of your monthly income.
Establish the habit of creating and working with a monthly budget and making it a point to save a minimum of 10% of your monthly income before you kick off with expenditure.
Automate your deposits to your savings account – this will enable you to stick to your saving goals easily.
2. Living large in your 20s
Always have the future at heart.
Learn how to budget and stick to it. In addition, in your scale of preferences, let your future financial well-being be your priority over your wants.
3. Making large and unnecessary purchases
Remedy: Always live in the consciousness that credit is actually debt and nothing less than debt. To get out of this, you are to stop using your credit card and set up a debt repayment plan.
4. Not paying off your credit card
Remedy: Save yourself interest payments, pay up your debt as quickly as you can, and start repurposing that money towards saving and investing.
5. Putting off financial decisions
Remedy: Start planning for your financial future as early as possible.
6. Not investing
Remedy: The remedy to this is to invest but before venturing into that, it is needful that you
research and understand the basics of what you are putting your money into.
7. Not having a backup plan
Remedy: Having a backup plan that generally protects you from unplanned and expensive life occurrences.
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How To Recover From Bad Financial Decisions
To recover from bad financial decisions, you are to follow the following steps:
- Acknowledge your money mistake, forgive yourself and let go.
- Make a decision to take on actions towards changing your financial situation
- Receive motivation and shift your circle of influence
Most Common Mistakes In Managing Money
The most common mistakes in managing money include:
1. Excessive and Frivolous Spending
Excessive and frivolous spending is among the biggest financial mistakes and of the most common mistakes in managing money.
You are to note that there are no two ways great fortunes are often lost if not one dollar at a time. So, it might look like no big deal when you pick up those times little by little but they all add up. So as much as time try to restrict yourself from frivolous and excessively spending.
2. Never-Ending Payments
Never-ending expenses are one of the things you have to avoid if you want to avoid making the biggest financial mistakes
Never-ending expenses emanate from having/keeping items that keep you paying monthly or yearly. To escape never-ending expenses, you have to create a leaner lifestyle as it will help fatten your savings and cushion yourself from financial hardship.
3. Living on Borrowed Money
Buying essential things with credit cards has become somewhat commonplace but that’s a financial red flag.
To avoid the most common mistakes in managing money, you have to avoid living on borrowed money.
4. Buying a New Car
Buying a car is not bad on its own but becomes one of the most common financial mistakes in managing money when you’ve checked your financial history, capacity, and capability to know whether you can cope with the responsibilities of maintenance, etc that comes along with owning a car. So, it will be due diligence to check well before you get one!
Other most common mistakes in managing money include the following
- Too many expenses on your house
- Living Paycheck to Paycheck
- Not Investing in Retirement
- Paying Off Debt With Savings
- Not Having a Plan for your financial future
What Financial Mistakes Should I Refrain From?
It wouldn’t be nice that you make the same mistake that some individuals have made and have related. It is wise to be on the outlook for these mistakes and get to know what caused them and ensure that you don’t repeat them.
The financial mistakes you should refrain from are:
- Lending money kept in your custody.
- Spending by impulse & engaging in unplanned expenses.
- Saying and thinking that money will always come.
- Spending based on other people’s purse.
- Don’t buy with the hope that someone else will pick the bill.
- Spending money before It gets to you.
- Spending money meant for a particlar task.
- Depending on the generosity of strangers.
What Are The Biggest Financial Mistakes People Make In 2021?
To have a better financial future in 2021, there are a number of money mistakes you should avoid and they include:
1. Copying other Investors
Just as we are different, so are your needs, risk attitude, responsibilities, family profile, and everything different. This being the case, you shouldn’t jump on any advice given to you by anyone on TV Channel or newspaper story without proper findings as to whether the advice would go well with you.
2. Acting on unprofessional advice
Before you take up advice, you should do due diligence to confirm whether the advice is a professional one or not. You shouldn’t go by advice because it was given to you by your family, friends, or well-wishers but because it is coming from tested and proven financial advisors aside from other considerations that you should put into place.
3. Not knowing where are you Spending
Not knowing where you are spending is among the biggest financial mistakes.
If your money is in your control, you should know, you should have the clue as to where you spend your money. It is financial irresponsibility not to know where you are spending your money.
4. Not having a monthly budget
Not having a monthly budget is a way to live beyond your means and is among the commonest money mistakes many individuals fall prey to.
The issue here is continuing in a lifestyle that you can’t afford. There are times when not having a monthly budget wouldn’t harm but it becomes a danger when it starts becoming a habit. So, watch it!
5. Insurance Policies in Children name
Buying insurance policies in your children’s name as much as it looks like one of the best decisions to make, might not be the best to do. This is the case because you need the insurance cover much more than your child. The insurance cover ends up securing your child’s future in case something bad happens to you.
6. No Goal-Based Investment Planning
An investment that yields better in the long run and that pays off the most is investing for goals. A lot of people make one of the biggest financial mistakes by investing money to multiply faster. This is a lure that has been proven to get people into the wrong products.
7. Not earning money in your free time
It is very important to make money in your free time. This is the case because it is one of the ways to stay ahead financially. It’s a way to get a bit of extra income hence has the ability to propel someone towards his/her long-term financial goals.
8. Lending money to friends when you can’t afford it
Lending money you don’t have to your friends does not in any way make you a nice person. It rather puts you in a financial mess where you struggle to meet or make up for the big hole dug.
This is one of the financial red flags to be conscious of.
9. Not having and maintaining an emergency fund
There are several forms of emergencies and they can strike at any time. In this regard, you have to be prepared for it at each point in time. My advice is that you always have a well-planned emergency fund (3-6 months of expenses) with you. You should have very easy access to the emergency fund and it should be in a safe financial instrument. This emergency fund should not be used for risk-taking.
10. Not taking out insurance
Among the very many things that COVID-19 taught us is the need to take out insurance.
The benefits that come alongside an insurance policy include;
- The payment of losses.
- Indemnification of individuals and organizations for covered losses.
- Managing cash flow uncertainty.
- Provision of payment for covered losses when they occur.
11. Having an unrealistic financial goals
One of the biggest financial mistakes that you will make in 2021 is to have unrealistic financial goals. Doing this is just like not having a SMART financial goal which has to be specific, measurable, achievable, realistic, and time-bound.
To have realistic financial goals, you are to do the following:
- Take out time and write out a list of things you want to accomplish.
- Affix a realistic timeframe to each of the things you want to accomplish.
- Find out how much you’d need to save weekly or monthly to get there.
- Keep the money to achieve these goals separate from your emergency fund.
12. Not negotiating a salary when starting a job
Not negotiating a salary when starting a job is among the biggest financial mistakes.
Negotiating your salary with your employer ensures that you have up to the amount of money required to cover basic needs such as food and rent from the get-go.
On the other hand, this helps you to set the tone of your relationship with your employer and places you at your rightful worth.
13. Swiping credit card for all big & small ticket expenses
This is among the biggest financial mistakes you wouldn’t want to make in 2021. This deals with making use of your credit card for every purchase. Not having financial knowledge does not suggest that the use of credit cards is harmful but It does hurt in the long run. So, avoid this by keeping a check on your credit card usage!
14. Having a skewed investment asset allocation
Having a skewed investment asset allocation means having a biased and distorted investment.
In order to avoid a skewed investment asset allocation, you are to have a mix of asset classes in line with your risk profile. Even for the Conservative Investor, for him/her to succeed financially, he/she has to have some percentage of Equity in their Investments. The Aggressive investor’s duty is to ignore debt completely. For everyone that wants to have a good investment portfolio, there’s the need to get his/her better post-tax returns higher than Inflation.
READ ALSO: 15 Best Investment Apps in 2022
15. Paying more tax than you should without realizing
Paying more tax than you should without realizing is among the biggest financial mistakes.
You are to ensure that you have the knowledge on how to read your payslip. Not having this knowledge means that you don’t know when you can claim a tax rebate.
Frequently Asked Questions
The worst financial decisions you can make include: Not saving for retirement, paying bills late, failing to monitor your credit, putting more money toward your mortgage when you have other debt, Not exploring financial aid for your student’s education, Paying the minimum balance on your credit card bill, having no emergency fund, not having a budget, failing to take advantage of rewards programs.
Some of the ways to deal with bad financial decisions include: Restarting life when you’re a financial mess, learning from your financial mistakes, forgiving yourself, using your mistake as motivation, tightening your expenses, refusing to take on any more debt, prepare for the future
The worst financial mistakes young people make are; Not Saving Enough, racking up consumer debt, overspending in their twenties, not investing enough
There are four main financial decisions: Capital Budgeting or Long term Investment decision (Application of funds), Capital Structure or Financing decision (Procurement of funds), Dividend decision (Distribution of funds), Working Capital Management Decision
There are a lot of financial mistakes that people make that they wouldn’t have made if they put in some effort to understand money and acquire financial knowledge.
We have taken time to take you through the financial problems that people encounter, some of the worst financial decisions that people have made, the most common mistake in managing money, the financial mistakes you should refrain from, and the biggest financial mistakes people make in 2021.
If you can diligently follow through with all we have made known to you here, we are sure that you will live above the biggest financial mistakes people are prone to making in 2021. Cheers!