As humans, we can all expect to make mistakes. However, our financial mistakes can prove to be among the most costly. In fact, they can often affect our entire lives and the lives of our family. The purpose of this article is to point out the 2 biggest financial mistakes that people make. In doing so, perhaps some readers can learn from the collective experience of others and avoid making these same financial mistakes.
How To Avoid The 2 Biggest Financial Mistakes
Biggest Financial Mistake # 1: Not Managing Everyday Risks
There is a certain amount of risk in almost everything we do. When we drive our kids to school or ourselves to work, we are at risk of being involved in a serious accident that could injure us for life and/or keep us in the hospital for a very long time. Our kids could be injured too, as well as our spouse. In fact, we could also be the cause of an accident where we would be liable for the damages. These can add up to the thousands of dollars, even millions in fact. Just walking across the street in our own neighborhood could lead to a collision with a speeding car. This could lead to a life long disability. Something as trivial as leaving paper too close to the heater or using an older extension cord could potentially cause a freakish accident that could burn our whole house down. The genes we inherited may give us a ticking time bomb for a heart or the propensity to develop malignant tumors. Our kids could inherit these unfortunate genes from us too!
We tend to think that none of these horrible things will ever happen to us. Perhaps this is a self-protective mechanism designed to put our mind at ease. However, the problem is that when they do happen, if we haven’t prepared for them, we may find ourselves in dire straits with nowhere to turn. We also may find ourselves in financial ruin. Hospital bills can run into the tens of thousands in under a week. We can quickly lose our job or find ourselves no longer able to perform our job if we are in a devastating accident. If we lose our house, we can be homeless in less than 24 hours. Think about those poor Hurricane Sandy victims! It is important that we prepare for all potential tragedies no matter how difficult it is to think about such things. Having the proper insurance policies can be the ultimate financial protection for ourselves and our families.
Biggest Financial Mistake # 2: Failing To Plan For the Future
Many people, especially in these hard economic times, live paycheck to paycheck. However, have you ever noticed that even when someone gets a substantial raise, they still have almost nothing left over at the end of the month? This is because of a basic human tendency: to concentrate on what we need and want at the moment and forget about our needs and wants in the future.
It can be all too tempting when we get a raise, a tax refund, some inheritance money, or some other extra source of money, to spend it almost immediately. We have a tendency to rationalize and truly convince ourselves that we really need to buy a new car, a new bed, some new work clothes, a new bike for our child, or finally take that vacation we been dreaming of for so long. However, here’s the problem. When we spend everything we have and never set any aside, we are borrowing against our future and potentially our children’s future.
It is important to always plan for the future in every financial decision we make. It is important to fund our retirement, put aside a sizable emergency fund, and create a college fund for our children. Instead of buying a new car, perhaps you could instead by a good used car. Instead of purchasing brand new clothes, perhaps you could shop for at least part of your wardrobe in thrift shops and/or wait until an amazing end of the season sale to buy clothes. Instead of buying that new bed, maybe all you really need to do is turn the mattress more often and get a good pillow top covering. Instead of buying a new bike, perhaps you can buy an old junk bike and spend quality time with your kid fixing it up. Regarding that dream vacation, sometimes less expensive vacations closer to home can be just as much fun. In each one of these everyday decisions, you can elect to invest the money you save into your future. You can fund your retirement fund. You can build up an emergency fund that will give a great deal of peace of mind and lower your stress levels. You can fund your kid’s college education and know in your heart how well you have provided for them.
How To Avoid The 2 Biggest Financial Mistakes
If you avoid the two most common financial mistakes described above, you will have the luxury of having the peace of mind it will bring. You will also put yourself in a very sound financial position.