Financial Mistakes to Avoid at All Costs | Don’t Work Another Day

No matter your age or income, we face financial decisions every day. Whether or not we decide to stop by a coffee shop on the way to work and shell out $5 for your morning pick me up. Whether or not to go out to lunch with coworkers. These decisions add up over time. While $5 for your morning coffee might seem harmless, add that up over 15 to 20 days per month and it can get very costly. But there are many more decisions than just your morning coffee. We’ll cover some of the most common financial mistakes and how to avoid them.

New Cars

We tell ourselves we want something that’s reliable. That’s reasonable. What’s not reasonable, overpaying for the newest car. Instead of purchasing a new car, you can usually find a model that’s a few years older for about half of the price. You’ll get a vehicle that’s reliable and affordable allowing you to save and invest more. According to Carfax, new cars typically will depreciate by more than 20% after the first 12 months.

But that’s not the only cost of a new car. Assuming you are financing the vehicle, you can also add a few thousand dollars of interest to the total cost of the car. Let’s assume that you pay $1,500 in interest over the life of the loan, which is 5 years. If you were to invest that in a conservative mutual fund that returns 6% per year, you would have $2,007.34 after the five years. Therefore the true cost of purchasing your car is now $2,007.34 plus the price of the vehicle if you include the opportunity cost of your interest income.

Expensive Vacations

For many people, “rewarding” yourself for a hard year of work is a no brainer. And while we do believe in taking a break from work to avoid burnout, expense vacations are not the way to do it. Especially if you dream to retire early. Instead, opt for a “staycation” or a cheaper alternative. Perhaps a weekend getaway. Use the additional time off to complete home improvement projects, learn a new skill, or volunteer your time. All of which will improve your life, and keep your budget intact.

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Spending too Much on Entertainment

This one goes hand in hand with expensive vacations. Spending excessively on entertainment is a disaster for your budget and financial goals. One of the biggest suspects is alcohol. Spending $8 for a mixed drink or $5 for one beer is a big no-no. While the occasional drink is fine, don’t allow it to turn into a weekly outing spending $50+ on alcohol. We suggest scheduling 1-2 nights per month to have some fun, but this isn’t your time to go overboard. Try to limit yourself to 3 drinks at a maximum.

Being House Poor

It’s recommended that you don’t spend more than 30% of your take-home income on housing. But people consistently spend more than this. And mortgage lenders are happy to do this. By spending more than this, you’ll put yourself in numerous financial risks.

  1. If something were to happen to your primary source of income, you might not be able to pay your mortgage.
  2. You might not be able to save enough for a proper emergency fund.
  3. Your investment opportunities will dwindle.
  4. You will pay more mortgage interest.

Ideally, we recommend staying at 20% or less of your take-home income, allowing you to have more flexibility and stability in the long run.

Not Being Ready for an Emergency

It’s bound to happen, so don’t put it off. Whether it’s a trip to the hospital, investments gone wrong, or a job layoff, emergencies can happen at any time, so you should always be prepared. Try to save for at least three to six months of expenses keeping in mind that more is always better. You will never know when or how long an emergency will last, so being prepared financially will allow you to live with less stress during these events.

Another extremely common financial mistake is not saving for retirement. It’s always easy to put something off that seems so far away. Whether you’re 25 or 55, you should be saving for retirement. Better yet, there are tax advantages that come with it. You can contribute up to $19,000 a year, tax-free, to your 401k so why wouldn’t you do it? Retirement will come faster than you think, and the more time your investments have to grow, the more you can benefit from compounding interest. Don’t be dumb, invest in your retirement, now!

These are a few of the most common financial mistakes that you can avoid. If your goal is to build lifelong wealth and live financially free, follow these tips and you’ll be well on your way. Check out this post for financial advice in your 20s!

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Forrest is a personal finance, entrepreneurship, and investing enthusiast dedicated to helping others obtain life long wealth. He owns several different blogs and is also passionate about health and fitness.

Read More :   How to Become Rich Overnight [Complete 2022 Guide]

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