Failing to create an emergency fund and not following a budget are some of the ways people fail to meet financial goals.
Let’s face it: many of the biggest lessons we learn in life will come from making mistakes. This is true whether we are talking about relationships, our careers and, of course, money.
Sometimes, those mistakes are small and caught early, allowing us the opportunity to try a better approach. Other times, though, these mistakes can go on for years, setting off a catastrophic chain of events that will affect you and your family for years to come.
Odds are that you will still make financial mistakes, no matter how diligent you stay or how much you learn. However, by learning some of the most common money mistakes and ways to avoid them, you may be able to save yourself some heartache (and greenbacks) along the way.
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With that said, here are five common financial pitfalls and practical ways to avoid them.
1. Not Having A Safety Net
One of the biggest financial hurdles you may encounter is living from one paycheck to the next. This practice is all too common, but that doesn’t mean it won’t set you up for failure.
By managing your finances with little (or no) wiggle room, you eliminate any safety net you might be able to build. If an emergency expense were to arise, you may not be able to cover it without going into debt.
Additionally, a paycheck-to-paycheck lifestyle doesn’t offer many options for the future. If you’re already struggling with regular monthly expenses, it may be impossible to save for a home, buy a new car or pay for your child’s education down the line.
Build an emergency fund. Save three-six months worth of expenses. And find some wiggle room between your income and spending.
2. Ignoring Your Budget — Or Simply Not Creating One
A past study by U.S. Bank found that 41 percent of American households use a budget. Of course, this means that the majority of households do not.
Your household budget doesn’t need to be complex or aggressive. It can also change over time as your lifestyle, income, expenses and needs shift. The most important thing is that you have a budget in place.
The second most important thing? Well, you have to actually follow said budget.
A budget does no good if you’re constantly breaking your own rules, though. Save first, cut out wasteful expenses, downsize (your home, car, etc.) if needed, and maintain established spending limits. By doing so, you’ll avoid unnecessary debt, work toward your future goals and build a secure safety net for your family.
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