Financial mistakes made in your youth can create hardships for you in the long run. It is often said that great fortunes are usually lost in poor spending habits. It is best to assume that when it comes to money, we all sometimes make mistakes that negatively impact our financial health.

Many times, these mistakes are made without realisation! Some of the common mistakes that people make are not investing regularly, not planning a monthly budget, or running up a huge credit card debt. If you have been able to overcome any one of these, then, well done!

However, you are not out of the woods yet. There are still financial mistakes you could be making without even being aware of it; here are some of them.

14 Common Financial Mistakes

  1. Spending more than you can afford
  2. Buying a new car
  3. Rushing to buy a home
  4. Living paycheque to paycheque
  5. Not investing in your future
  6. Borrowing money
  7. Paying off debt with your savings
  8. Ignoring your credit score
  9. Not having insurance
  10. Paying full price for everything
  11. Not saving for your child’s future
  12. Postponing saving for retirement
  13. Lending money without thinking
  14. Not asking for a raise
  • Spending more than you can afford

Excessive spending is one of the biggest financial mistakes that you can make. It doesn’t seem like a big deal if you are spending a few extra bucks every week on ordering food or buying clothes you don’t need; but, multiply this amount by 52, and that’s the amount that you are wasting every year! If you can save even half of this and add it to your savings, you can create a nest egg for yourself for a rainy day. It is must, to have a monthly budget; otherwise, you will end up overspending. What’s more, the easily available credit cards have made it easier to spend more than we can afford; so refrain from swiping your card as much as you can.  

  • Buying a new car

It is vital to save money to buy a car, instead of taking a loan or borrowing money as you end up paying interest on a depreciating asset. The best advice is to buy within your budget and means. If you have to take a car loan to buy a car, purchase one which is smaller and consumes less fuel, rather than a large SUV which will cost more, and consume more fuel as well as has higher maintenance costs. Cars are expensive, and if you are buying a bigger car than you need, you are burning money which could be saved up for other expenses or paying off debt. 

  • Rushing to buy a home

Buying your own house is one of the most significant financial decisions that you will ever make. However, it is crucial to understand how much you can afford to spend on your house. A home loan is one of the biggest debts that you can incur, and the decision to invest in your home should be taken when you have enough savings and can pay your monthly home loan EMI with ease. If you don’t have a home loan, you will be less stressed and won’t have to shave off a part of your monthly salary in EMIs. 

  • Living paycheque to paycheque

Many households live paycheque to paycheque, and any unforeseen expense can become a problem since there are no savings. Relying only on your monthly paycheque can be a tough position to be in because if you miss even one paycheque, you will be in a precarious position. It would be best if you ideally had at least six months’ worth of your monthly expenses in your bank account, in case of emergencies. Loss of employment or a change in the economy in such a situation can force you to borrow and trap you in an endless cycle of debt. 

  • Not investing in your future

Making monthly contributions to your saving account can help you build a corpus for a rainy day. There can be several unexpected expenses like car repair, home renovation, an unplanned vacation, medical emergencies, and so much more. It would be best if you built up your savings for managing these unexpected expenses. Understand your risk profile and invest in different savings schemes. It is ideal to have a balanced portfolio with a mix of equity and debt funds and traditional savings schemes. 

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  • Borrowing money

Many people are in the habit of borrowing money from friends and relatives for major avoidable expenses and paying it back later, even if they have enough money to get by. While many times close family members do not demand interest, distance relative or acquaintances might. This also usually negatively impacts personal relationships and causes conflict. It is best to avoid borrowing money from friends and family and turning to official sources of credit whenever in need. 

  • Paying off debt with your savings

You may think that you have a mortgage at 15% interest and your saving plan is giving a return of just 7%, so it makes sense to pay off your debt with your savings. However, it’s not that simple. If you take out money from your savings account, you will lose interest earned by compounding as well as incur a penalty for taking out money from your FD or retirement fund. It is ideal to pay off the debt as and when you have some extra cash, rather than withdrawing your FD prematurely or taking out money from your retirement fund. 

  • Ignoring your credit score

A good credit score can help you save a lot of money in interest rates. The better your credit score is, the easier it is to get higher loan amounts, and even a better rate of interest, for things like buying a car, house, personal loan, etc. You should check your credit score every six months or so, and make amends by spending wisely if any errors are found in your report.

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  • Not having insurance

It is vital to have insurance, which protects you against medical contingencies. Medical insurance is the first thing that you invest in once you start earning. Medical insurance is available at affordable prices in the market these days, so there is no reason not to go ahead and get one. Apart from medical insurance, you should also have a term insurance cover if you have any loans, like home loans, car or education loans.  

  • Paying full price for everything

In today’s day and age, it’s almost a sin to be paying the full price that is mentioned on the packaging. A simple search can get you deals and offers on restaurants, hotels, flight tickets, groceries, clothes, and even online food orders! Make sure you compare the prices from different websites before taking a final call, and your pocket will thank you. 

  • Not saving for your child’s future

It is important to create a college fund for your children when they are still young. Education is expensive, and you need to calculate how much your children will need when they grow up, taking into account inflation and save some enough money for providing them quality education in the future. Apart from this, it is also essential for you to teach your children about the importance of saving money.

  • Postponing saving for retirement

When you are young and have lesser income, you may delay starting a retirement fund. However, it is imperative to save for your retirement and start as early as possible. The earlier you start; the bigger the amount you can save. Start by saving at least 15-20% of your annual income for your retirement fund. This will help you live a life of comfort in your golden years, and be financially independent even after you stop actively working. 

  • Lending money without thinking 

Another bad financial habit is lending money without thinking twice. This one is tough if it is your loved one or a family member who is asking to borrow from you. In some scenarios, they may not be able to return the money they borrowed from you, which may lead to awkwardness or ruin the relationship. If a close relative or friend asks for money, it is better if you can help them to figure out how they can borrow from a bank or earn some extra cash, rather than lending yourself. Be honest in your assessment of their financial situation and help them in other ways before writing them a cheque.

  • Not asking for a raise

For getting a raise in your organisation, you usually have to work hard and make sure you vocalise your demand for a better salary. The company may give you a nominal raise of 5-7% every year; however, if you want a decent hike, you will need to communicate it to your manager. If you think that your skills and calibre is not being rewarded appropriately in your present workplace, don’t hesitate to explore other options. Remember, while changing jobs, you have the leeway to negotiate a better salary.  

It is important to take a step back and recognise the financial mistakes that have been making. Keeping a check on your little expenses can help you from accumulating significant debt. Please think carefully before adding new mortgages to your list of monthly payments, and understand that it is better to save for a big purchase rather than depending on your monthly paycheque to pay off your debts. If you’ve identified a few of the mistakes that you have been making from the above list, formulate a plan to avoid them in the future and make smarter financial decisions.