People encounter financial distress at some point in their life. Some of these financial problems are caused by some money mistakes. In this article, we will highlight some of the money mistakes that you should avoid to become financially independent.
Money Mistakes to Avoid at the 20s
1. Failure to Plan
The first step to gaining financial independence is having a spending plan, also known as budgeting. Plan for your money before you can get paid. Account for every penny you earn and ensure that you use it in a productive way. It will help you avoid random expenses that often sneak on a daily basis and add up over time to huge amounts. Budgeting will also ensure that you set aside some savings which can help you during emergencies.
You can use money management apps such as Hiatus, Trim, Empower app, and Quicken.
2. Failure to Save
During your 20s, it is the appropriate age that you are supposed to start saving for emergencies and for your retirement. The best way to go about it is by budgeting; write down your financial needs and stick to the plan. When you get paid, first deduct the savings and you can spend the rest. You need to set aside 15% of your income to go into savings.
3. Buying a Car to Early
It is not a good idea to buy a car in your 20s. In your 20s, you should be laying a good foundation for your future. A car is an expense and you will be spending a lot on insurance and maintenance which you would have otherwise saved or directed into an income-generating scheme. Also, there is the cost of depreciation when disposing of the car. Instead of buying a car, invest the money in a project that will be generating money.
4. Living Beyond Your Means
Many people in their 20s tend to live beyond their means and end up accumulating many debts. You should spend less money than you make so that you are left with some savings. The problem is that many youths want to compare themselves with others. There is no use buying things you cannot afford since they will make you get into further debts. As such, don’t purchase a car you are not in a position to pay. Alternatively, if you must get one, save for it but don’t buy one using debts.
Money Mistakes to Avoid in Your 30s
1. Paying Off Debts Using Your Savings
In the 30s, people usually have accumulated some savings. However, many people make the mistake of paying off their debts using the money they have saved, thereby depleting their savings. The best way to go about it is to pay your debts from income-generating projects. Also, avoiding unnecessary debts will help you not to use your savings to pay off your debts. Also, before getting a loan, it is best that you come up with a plan on how to repay the money.
2. Spending Too Much on Your House
It is best that you build or buy a house that is enough for you. There is no use in building a large house than you need. Your house is not an investment since it does not generate money. It is best that you don’t spend a lot on it. Instead, direct the funds into a revenue-generating project. If your house is too big, you can rent it out and rent a small house.
3. Living Paycheck to Paycheck
You need to always be prepared in case of an economic recession or in times of emergencies. Also, you need to plan in case you lost your job. In your 30s, you should be investing and preparing for your retirement. Once again, to avoid living paycheck to paycheck, you need to budget and live within your means.
4. Failure to Invest
It is best that you start investing early. When you start investing in your 30s, your investments will start generating revenue early, and you will have multiple sources of income besides your normal job. This prepares you for retirement such that even when you stop working, you will have some passive income. For instance, you can invest in real estate property businesses and choose among the best compound interest investments, which can generate you some revenues at the end of every month.
Also Read: Review of Best Money Management Apps
Money Mistakes for Business to Avoid
If you own a business, you need to be aware of the following money mistakes and how to avoid them.
1. Failing to Budget
You need to balance between your business income and expenses and the way to go about it is by having a budget. You also need to know when to reduce your expenses to avoid losses. For instance, if you realize that there will be going to be a decrease in sales, you can find ways to lower your business expenses.
2. Mixing Business Money and Personal Money
You need to separate your money and that of your business. it is best that you open a business account. Having separate accounts from your business will help you keep track of business cashflows. It will also help you know if the business is making any profits. For instance, if you inject a lot of personal money into the business, you can confuse it for profit.
3. Under Pricing
When the competition is high, many businesses tend to under-price their products and services. This is common practice with small businesses that are just starting. The rule of thumb is to account for all your business costs when setting prices for business goods and services. Under-pricing may work for the short term, but it will make you close down your business. However, you also need to be careful when setting prices to avoid overcharging compared to your competitors.
4. Overspending on Startup Costs
Most people when they are starting a business they tend to be very optimistic about how their business will grow. It is a good thing but it is also important to be realistic. It is best that you start small and expand your business based on demand for goods and services. This will prevent you to overspend on startup costs. As such, come up with a startup budget and stick to it. Once your business is up and running, you can expand it when it is necessary.
5. Not Paying Yourself
Many people do not account for the effort they have contributed to the business and end up not paying themselves. You need to realize that you are your own boss and need to get paid. As such, you need to include your salary in your business expenses. This will help you meet personal expenses without suing business money. Do not underpay yourself. In any case, pay yourself as much as you would have paid an employee.
6. Lack of Enough Working Capital
Lack of working capital is a common problem with small businesses. When you are starting a business, it is best that you have enough working capital which can cater to your business working capital for at least 6 months. It will prevent you from borrowing to sustain your business expenses. There is nothing wrong with business loans. Only that they usually have some level of risk.
Final Word on Money Mistakes to Avoid
To gain financial independence, you need to avoid the above money mistakes. The best way to go about it is to budget for your expenses and savings. Once you have a budget, you need to stick to it. This will avoid expenses creeping in. The unbudgeted expenses seem small but they add up to huge costs.