The 7 most common financial mistakes you can make
Finances are a headache and we are not all experts in terms of managing our own finances. But it is necessary that we learn to do it so as not to ruin our financial situation. So we must first begin to know those common mistakes so we do not run out of money in our bank account. Here are the most common financial mistakes you can make.
we will talk to you about 7 financial mistakes and how you can avoid them.
Our finances go hand in hand with the goals we want to achieve.
The most common goals are buying a house, a car, traveling, paying for college; all of this implies significant outlays of money in our lives that we have to support. Therefore, it is important saber how to use the money we earn, no matter how you do the latter.
This post will not talk about ways to get more income, or how to generate money. But the complementary part to this task: managing wealth. For that, we list 7 financial mistakes that most people make. And a practical solution to learn how to avoid them.
Following these steps will not make you organized overnight. But it will put you on a path closer to achieving your goals. Ideally. You should start in order of importance: start with step 1 and follow the order until you reach the end.
7 very common financial mistakes and how you can avoid them
The basis to manage your finances, before anything else that you can think of, is to know how much money you are entering into your pockets, versus how much goes out.
In this simple way, you can identify the areas in which you are spending more and can make a distribution of money that is more beneficial to your personal goals much.
For this, the essential thing you have to do is keep track of how much you spend and on what, so that at the end of the month, you can define what you will do for the next one with that money. Roasted, a chain is formed in which you observe what you are spending and you can cut the expense of that item to put it in another more important.
As an example, you might stop paying for a coffee in the morning and set aside that amount you spent last month buying coffee in the corner to buy a coffee machine the following month.
Which brings us to the next financial error. It is one of the financial mistakes.
A dream ceases to be a utopia when you put a date on it. And to reach the goal in a certain time, you have to develop a plan.
Many times our “dreams” are directly tied to money, whether it’s the vacation you’ve always wanted, the car you’ve always wanted to drive, the house in which you yearn to live, among other things.
That is why, once you have detected what you spend, you will also be able to define how much you are able to save each month. It is one of the financial mistakes.
In this way, you control your expenses to send as much money as possible towards what really interests you and start saving money for that goal that you set and that you soon want to fulfill.
Ways to save there are many (some more effective than others), from having a piggy bank in your house to automated savings charged to your payroll.
These are very different ways of saving, but both fulfill the final function that is to separate money that you may well have spent on something else, and ensure that you are put to work to meet your goals.
The problem with saving under the mattress or in a pig is that money will lose value over time, which you can mitigate by avoiding the financial error of the next point.
All the money you keep for a long time, even if you do not perceive it, is losing value. The value you lose is dictated by inflation, which depending on the country where you live, will vary, just as it will do for the time in which it is being calculated.
For example, in Mexico, the rate is estimated at 3 percent per year but varies year by year its value, If today you decide to save 100 pesos, in a year, with that same ticket you will have the purchasing power of 3 pesos less than the previous year.
This does not mean that you have 97 pesos, it means that you have 100 but that a year ago you could have bought something more expensive than today with that same money.
Maybe with 100 pesos, the example is not very big, but start imagining bigger amounts and tell me if you would not mind having 1 million pesos today and having “lost” 30 thousand pesos for the year that I came.
To fight inflation, the best idea is to invest it, so that it generates more money while you are not taking care of it.
For beginners, there are low-risk assets such as funds that invest in government debt (which, in general, will give you the same amount as a bank’s reference rate or in other words, the equivalent of inflation).
If you have more experience, you can venture into areas as different as a simple compound investment fund, opt for commodities such as gold, silver and oil, shares of the stock market or even cryptocurrencies. It is one of the financial mistakes.
The assets and terms that you choose should be aligned with your goals so that the investment can be effective.
One of the basic rules in investments is not to put all the eggs in the same basket, which is nothing more than a graphic way of saying that you should not put all your money in a single asset.
Regardless if we talk about gold, cryptocurrencies or stocks, all these assets have a cycle in which, after raising the price, it has a “correction”, which means that it lowers its price, then goes up again. Keep reading- The 13 best tips that best investors can give to entrepreneurs
It sounds simple in theory, but in practice, you do not know exactly how much it will go down and how much it will go up, so even if it goes down, you will never know if it will reach the same point at which you bought it for the first time.
Eventually, it will touch that price again, only it can take years and even decades until that happens.
One way to mitigate the effect of waves that assets have is to invest in a varied portfolio with which you can offset the decreases of some assets, with the increases of others. It is one of the financial mistakes.
For example, when stocks increase, treasury funds fall, as people are more confident in the economy and venture into more risky investments (since treasury funds have a certain value).
Therefore, when it is said that an economic recession is looming in the country, people take their money out of the stock market and put it into more secure assets such as treasury funds.
If you do not have the time or the dedication to be able to control the ups. And downs of all the assets in which you invest. The best thing is that you diversify so that your investment remains stable despite the movements.
Sometimes you will earn more than you invested, sometimes you will lose, and sometimes you will remain the same. The idea, at least in your first investments, is to be able to maintain your purchasing power and earn it against inflation.
When you acquire more experience, you will be able to experiment with different assets that make you gain more and more. It is one of the financial mistakes.
Another common mistake is to have liabilities instead of assets.
What is one and the other?
Assets are everything that generates you money: that is if you were the owner of a franchise. A local business or an e-commerce store, all this is something that generates you money.
Although you can spend money on advertising or some other items that require your maintenance. They are expenses that you make to grow your investment and in the end. You will see a return on that investment.
On the other hand, there are liabilities, which are objects or things that you buy that are not generating you money. For example, television, clothes and other items.
Among the objects that are commonly confused as assets when in fact they are passive are computers, automobiles. And houses, which are even subject to devaluation. In Car match.mx’s study on the devaluation of cars in the market you can see how to maintain their value if you are still interested. It is one of the financial mistakes.
However, if you buy a car and use it to go to work. The good itself is not generating money since you could use another means of transportation to get there. And since you do not depend on the car to generate income, it is passive.
A house, on the other hand, although it increases in value over time. Does not mean that it represents an asset since as long as you do not rent it, it is also a liability.
The best and most recommended is to get rid of all those liabilities to start buying assets. That is, sell everything that does not generate money for you to invest in something that does.
You can sell your car so you can pay the down payment on a house. If that house is put on rent, it will become an asset for you and the car will cease to be a liability in your life.
Currently, there are many ways to get rid of your liabilities, such as, for example. The Facebook market where you can sell second-hand things easily, such as computers or other electronics.
In the case of the car, there are already online platforms that can buy your car safely and quickly as Carmatch.mx.
In this way, you can sell everything without complications, start investing in your assets and thus create cash flow.
6. Do not separate business accounts and own payment
Closely linked to the previous point is the separation of business accounts with own salary. Many use the same account to pay for personal and business expenses. Which often results in an imbalance between what is spent and what is paid.
Business owners forget that they have to pay a salary because they assume that the profit of the business is entirely theirs and they can dispose of it at their pleasure. It is one of the financial mistakes.
However, it is a risky practice since you are spending without control; It reaches the end of the month and that the business is finished with negative numbers. Because it happened to your hand with spending here and another there.
Maybe in a specific month, it does not affect you so much because you can pay everything with ease. But imagine that you have to pay for the inputs that depend on your business running and you already had spent that money.
The first thing you have to do is define your own salary according to your needs. And the possibilities of the company. So you can take the income and expenses of the company separated from yours. And you can plan better both your finances and your own business.
As the last point, but not the least important, there is an emergency fund.
You may have already planned all your financial structure. And you have control how much you spend, how much you enter, and even have your savings. But if an emergency arises you would have to resort to that money that you have been collecting to get out of the unforeseen. And this would affect the goals that you had already established.
There are serious emergencies on which your life depends. Such as paying for a doctor or an operation after an accident. Which is usually very expensive and can not be avoided. Or they can be simple things like the refrigerator broke down. And if you do not buy one soon, it will spoil all the food in it.
If you did not have an emergency fund, that money will come out of your savings fund. And since it might be easy to replenish that amount the other month. You may end it completely or even have to borrow money.
To avoid all this, it is important to designate a saving that is not intended for any specific goal. But is limited to covering emergencies. It is one of the financial mistakes.
For this, it is advisable to allocate about 6 months of your monthly expenses. This money must be kept in a bank account in which you have the immediate liquidity to be able to dispose of it whenever you require it without any kind of penalty for removing it before a defined period. It is one of the financial mistakes.
In this way and following all the previous 7 steps, you will be shielding your financial health. So that you can reach all your goals and set goals ever higher. As I said at the beginning, mastering each of the steps will be a process that will take time and effort, however, it is not impossible.
You should be applying each of these steps as you feel is appropriate. Since everything is a balance in which all these recommendations are combined in a comprehensive manner. Some points will take more effort than others. But now you know what are the bases to start taking control of your financial life.
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