Financial planning is an excellent way of tracking your money and making it work to achieve a bigger goal, but there are certain mistakes that can be made while planning that have devastating consequences.
There are many reasons that can lead to a small bank account, and unfortunately, you can’t control all of them. But there are also certain things you can control and all it takes is a change inhabits.
Here are some mistakes you shouldn’t make if you don’t want to go broke:
1- Not paying yourself first
To build wealth, you need to save. There’s no other way around it. And the first thing you should do every single time you get a paycheck is saved a portion. Ideally, you will save 10% of your income and then organize your expenses with whatever’s left.
2- Not having an emergency fund
If you don’t have an emergency fund, you won’t be able to respond in case a serious problem arises. If you lose your job or you have a medical emergency, you might be forced to use credit cards, which have a high-interest rate, or you might dip into your retirement funds or skip other payments to cover for the unexpected one. All these are financial setbacks.
3- Not creating a budget
You need to have a budget no matter how much money you have. At some point you’ll need to sit down and create a budget, always keeping in mind that you need to save at least 10% of your income first.
This one is pretty obvious, but even if it’s ok and actually a good idea to occasionally spend money on things you want, you’ll be better off if you keep focus on what you need first.
5- Excessive use of credit
If you need to take debt to buy a house or pay for your college tuition, you’ll be doing a reasonable use of your money. But if you incur in debt to purchase things or items you don’t really need right now, you will be creating a bigger problem later on, as you not only will have to pay for the item purchased, but you will also have to pay a high-interest rate on top of it all.
The only way to avoid being broke is by consistently saving money. Have a look at your financial situation and find all the areas that could use some improvement and make the necessary adjustments.