7 Most Common Personal Finance Mistakes To Avoid

Managing your money, investing, and saving are all part of personal finance. Moreover, it also includes planning for retirement and taxes and estates, as well as banking, insurance, and mortgages. 

It is important to strike balance between your personal life and finance. Personal finance helps to understand how a person can plan for his/her future. In simple words, personal finance could be called managing your personal expenses in such a way that some future benefit is expected.

The most common personal finance mistakes that a person often makes are discussed below:

1. The Lack of a Plan or Budget

Budgets are estimations of revenue and expenses over a specified period of time and are usually compiled and reviewed periodically. They can be created for individuals or groups, for businesses or governments, and for anything else that makes and spends money.

Today we see that the youth is ignoring the need for going without a proper plan or budget. They keep on spending unnecessarily. It is very important for a person to have a proper plan and a budget as it helps them to spend according to their income.

There is a golden rule to avoid the personal finance mistake which is in the ratio of 60:40

As we know there are different needs and wants that a person is carrying on his shoulder so 60% of the income should be kept aside to spend on the needs and wants, whereas saving also is an essential part of one’s life so 40% should be kept for saving which he/she can rather invest in stocks or mutual funds which would provide a regular gain on investment.

2. Spending More Than What is Earned

This is considered a major problem when it comes to personal finance mistakes. People have a habit of spending more than what they earn rather than focusing on their needs they focus more on their wants. Here society plays a very important role as everyone wants to be recognized in society and also wants everyone to feel jealous of them and because of this only they keep on spending on unnecessary things that should be avoided.

3. Unnecessary Spending on Depreciating Assets

Depreciating assets are those whose value keep on diminishing year to year spending on depreciating asset is not necessary for the early days. The best example of a depreciating asset could be a car, when a person starts earning, he/she spends the income on buying a new car rather than doing something productive with that money. 

What people do is suppose they are earning 1 lakh per month and they buy a car worth rupees 25 lakh so in this case, they would end up paying 30,000-40,000 per month EMI which is not a smart idea at all. It doesn’t mean that a person should not buy a car rather than buying a new car he/she can go with a pre-owned car in the initial days.

4. Delay in Starting to Invest

When people are young they think that it’s time to do parties and spend on new phones, cars, bikes and ignore the importance of investing and think that there is a lot of time to invest but that’s not true investing is the key to a successful and a secured future. Investing is a discipline, the biggest is to not realize how important time is when it comes to investing. For example, if you invest an amount for 20 years, the same amount will be doubled in 30 years. This is the power of investing so, people should start investing early.

5. Not Owning Assets

To grow wealth a person has to own assets. Assets are things that will make you money even if you are spending time on them for example owing stocks where the company grows and you make money is an asset to you. So, the best way to own an asset is to own a company stock that will give gains in the future.

6. Burden of Debt

Debt in simple words is when you owe something to someone. What a person generally does is he/she takes a loan to buy some specific things even credit cards can also act as a burden of debt in a person’s life. For example, if a person takes a loan to buy a bike so here, he/she ends up paying the amount of interest and debt is something that needs to be paid off it cannot be ignored, and living under debt is the worst way to live your life. So, the burden of debt should be avoided in order to live a joyful life.

7. Credit Scores and Credit Reports aren’t Monitored

Regardless of how careful you are with your credit; you should have a regular checkup on your credit reports to make sure you are actually responsible for everything listed there. Identity theft is on the rise, and creditor or bureau errors could harm your credit score. So, there should be regular monitoring of the credit scores and credit reports.

Conclusion: 

These were the personal finance mistakes that one should avoid in order to be successful and secure. Proper planning, budgeting, saving, and investment is the key to success and these points must be considered when we talk about personal finance because these are some of the most important aspects. So, one should keep these points in mind and work accordingly.