6 Financial Mistakes that Will Cost You Big

Finances are a stressor that no one enjoys discussing and a study shows nearly 30% of Americans are not saving any of their income. Changing spending habits can be difficult when you cannot determine where you are making mistakes.

While everyone's finances will be unique, there are a few common mistakes that anyone can avoid to save a substantial amount of money and better position themselves financially. Even if you are currently facing financial difficulties, avoiding these six common mistakes could be the key to becoming less stressed about money.

1. Not having a proper budgeting plan

Controlling and managing your spending habits is a way to help ensure your financial success.

Budget plans produce results almost immediately. By documenting where your money is going, you can identify unnecessary expenses and eliminate them, such as unused subscriptions, food delivery service fees, or even that coffee on the way to work.

When you free up money from elsewhere, you can use it to pay off debts such as credit cards and loans.

Budget for your necessities first, and if you have some extra cash leftover, it is okay to reward yourself with a cup of coffee from your favorite shop before going to work. Just make sure a cup of coffee does not become a daily habit that you, later on, have to cut from your monthly budget.

2. Excessive spending

When someone thinks about excessive spending, they may picture a luxurious shopping spree and reward themselves for not being an excessive spender based on that image. Unnecessary spending can also be excessive spending.

If you walk into a home, you will likely find a coffee maker on the kitchen counter. Despite having coffee at home, people will still stop at a coffee shop daily before heading to work.

Say you paid five dollars for that cup of coffee. Spending five dollars, five days a week on coffee will accumulate to become a habit costing you $100 a month or $1,200 a year! Excessive spending is not necessarily a $1,000 shopping spree. It may instead be monthly subscriptions that go unused or frequent restaurant and delivery habits.

3. Not having an early start on your retirement fund

Most people are not thinking about their retirement fund in their twenties, but they should be.

Although retirement is decades away, having more time to contribute to the fund could become less of a task the earlier you start. When you open a retirement fund early, a smaller amount of money is needed monthly to reach the same goal by retirement. 

For example, if a 25-year-old wanted to save $500,000 by the time they were 65 years old, $1,041 would be the required monthly contribution to reach that goal. However, if a 45-year-old wanted to accomplish the same $500,000 goal, they would need to contribute $2,083 monthly. 

With an early start, a significant portion of your monthly income becomes available for other purposes.

4. Living beyond your means

New technology is constantly emerging, but with increasing technology comes increased costs. Many people attempt to squeeze a brand-new house or car into their budgets despite their financial difficulties.

When making important decisions such as a house or car purchase, you should consider all the expenses included rather than just the monthly or mortgage payment. The bigger the house, the more expensive property taxes, utilities, and maintenance will be.

The same goes for a car. Typically, the more expensive a car is, the more expensive its parts and maintenance are. These are factors that you should budget for to ensure you can afford the new expenses.

5. Lack of future or emergency funds

Life is unpredictable, and without planning for the unforeseen, you could be setting yourself up for financial hardship later.

When your car breaks down, you lose your job, or you go through a health emergency, you will need access to an emergency fund to avoid putting these expenses on a credit card or a loan. By putting these expenses on a credit card, you accrue interest and increase your monthly payments, further weakening your financial situation.

Experts recommend saving 3-6 months of take-home pay as an emergency fund. They calculate this recommendation to ensure you can get through 3-6 months of your current lifestyle and expenses if you had no income for these months. Should an emergency occur, considering your financial situation beforehand can keep you from going into debt and keep you in a good position financially.

6. Using personal finances for business expenses

Personal finances should be separate from business expenses. Operating your business should not require you to deplete your savings or use the emergency fund, especially when there is zero interest funding that you can access instead.

There are higher interest funding options such as hard money or private lenders, but those options will require a form of collateral. You do not have to give up equity or collateral to fund your business, which is why Fund&Grow helps business owners and entrepreneurs access up to $250,000 in introductory zero-interest business credit. 

There is no collateral, and this type of funding does not show up on your personal credit report, so you can keep your personal and business expenses separate. No matter what kind of business you own, whether it is real estate, eCommerce, service, or trucking, you can access business credit. 

Although monitoring your finances can seem overwhelming, you can start with the small expenses and work your way up to the larger ones. 

To determine if a new debt fits into your budget, calculate the immediate expense and future expenses. Additionally, you should budget some of your income for savings specifically to assist in growing an emergency fund. 

There are hundreds of mistakes that can impact your financial situation. It is essential to prioritize addressing these six mistakes and learn from them as a step towards improving your financial wellness. 

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