Finance is difficult even for trained professionals. Here are some serious personal finance mistakes that you should avoid making at all costs.
Not Setting Aside Money for an Emergency Fund
Yes, the first thing you should do when money is tight is to save more money. If you set aside a certain amount to pay yourself like it is a bill, you will not have to worry about any unexpected expenses.
The emergency fund is set up to keep you out of debt if something unexpected happens so that you will not have to pay late fees and penalties on top of any debt that you may have incurred.
Not Choosing a Plan to Pay Off Debt
There are two major ways in which you can pay off debt – the Snowball and the Avalanche.
The Snowball method of paying down debt involves throwing all of your resources at the smallest bill until it is paid off. This will give you a psychological lift for the next smallest bill, and so on and so forth.
The Avalanche method means that you pay off the bill with the highest interest rate first. This will save you money over the long term.
Not Buying Staples in Bulk
Certain items like bread, rice, bottled water, underwear and socks can be purchased in bulk from a warehouse.
This will leave you more money to put in your emergency fund or to pay down debt without having to diminish your lifestyle.
Not Giving Yourself a Grocery List
A great deal of the money that you spend in a month goes down the drain without you ever knowing where it went. This money goes towards impulse buys when you take trips to the store or the laundromat.
If you give yourself a definite list before you go out, you will be much less likely to spend these pennies on the impulse products that will quickly add up to substantial amounts of money.
Instead, put this money to work for you by paying down debt or by putting it into your emergency fund.
Not Cutting Out the Fat in the Budget
Much of the money that you spend is on convenience, not on products and services.
Case in point: You will spend almost 20% more money each month to go out to eat rather than staying home. When you go to the grocery store, purchase healthy foods that you can cook.
One specific way that you can lower your budget each month is to stay away from the convenience aisles in the grocery store. Fresh, raw fruits and vegetables cost much less than TV dinners, believe it or not.
This term can mean different things to different people. For one person, it can mean buying a coffee maker rather than going to a convenience coffee shop every day.
For another person, it can mean investing in stocks. Either way, having some accounts going up in value is a psychological lift that will help you to pay down your debt.
It will be even more of a stretch to set aside money to invest, but this goes along with the strategy of paying yourself first when money is tight anyway.