Personal finance mistakes to avoid (and how to fix them)

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Personal finance mistakes to avoid (and how to fix them)

When it comes to personal finance, it’s really easy to make mistakes. This can be simply because you don’t know any better or because you’re in a situation when finances are tight and you have to direct your resources toward immediate needs rather than thinking about the long term. All the same, it’s best to try to avoid these errors if you can. If you’ve already made them, there are still things you can do to change course.

Not Making Retirement Contributions

Prioritizing retirement is one of the most common money tips and not contributing to a retirement account is a mistake. An even bigger mistake is not doing so in your twenties because of how much that money can grow over the decades. Of course, many make this error because at that age, retirement seems so far away and you’re probably not making a lot of money to begin with. However, if you’re young, putting away even just $25 or $50 a month now can make a big difference in the future. If you’re over 50 and your retirement account is looking anemic or nonexistent, there’s still hope. Contribution limits for 401(k)s and IRAs are higher for those over 50. Meeting with a financial advisor and making a plan to contribute aggressively can help you make up for lost time.

Not Having Emergency Savings

Standard advice is to have enough money in emergency savings to cover a minimum of three to six months of expenses. For some, this is a lot of extra cash to come up with, and it can take years to save up. However, the advantage of these emergency savings is that you have access to easily liquidated funds when things come up, as they always do, such as a sudden need to fly cross-country to visit an ill family member, a car repair or a big vet bill. Even $500 can help as a cushion against a lot of unexpected expenses, so start with a smaller goal and build up from there. If you do run into an unanticipated expense and you don’t have any savings, a personal loan is a better solution for covering the cost than using a credit card. You might assume that the process of applying is difficult and lengthy, but you can quickly find out if you are approved, and the interest rates are likely to be lower than they would be with a credit card.

Living Above Your Means

Emergencies are one reason that people end up with credit card debt, but it’s by far the only reason. It can simply be too easy to put a meal, an article of clothing or even a vacation on a credit card just this once. The problem is that just this once never really means just once, and before long, you may be paying more in interest than the items originally cost you. Create a budget and cultivate a habit of sticking to it, never living above your means and saving for things you want rather than putting them on credit. This approach will solve a lot of current financial issues and prevent many future ones.

 

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