Top Financial Mistakes to Avoid in 2020

It’s a new year and you’re probably tired of hearing about other people’s ‘New Year’s Resolutions’ by now. But, that shouldn’t be the case if you have financial goals you would like to achieve as well as some mistakes you’re looking into correcting in the New Year.

Avoiding financial mistakes should be your number one priority as an entrepreneur or day-to-day working individual. Broadly speaking, a financial or money management mistake is an action (or inaction) taken by an individual that, over some period which results in scenarios such as:

  • Losses of money, weaker performance or utility of money
  • Incorrect strategic decisions for money management
  • A worse standard of living or financial flexibility

All these consequences are a result of these financial mistakes you should be aware of and work towards avoiding at all costs:

1. No Rainy Day Fund

Do you have little or no money in savings accounts, retirement plans, and investment portfolios? When something breaks, or difficult circumstances such as unexpected medical expenses, any unforeseen circumstances in your business – or a job loss happens that forces you draw down what little savings you have and go deeper into debt.

You need to have a financial back-up at all times to cover for those rainy days. The best way to go about this is by starting a savings plan and making sure that you are consistent.

2. Too Much Debt

Borrowing too much can leave you in a lot of debt that you may not even have the capacity to settle it. This then leaves you in a situation where you are left having difficulty meeting your expenses each month.

The best way to avoid this is by simply reducing debt.

3. No Plan

Do you have a written financial plan, to help you plan for unexpected things and future goals? A comprehensive financial plan used to be difficult to come by unless you had substantial assets, but with a financial plan, you can take control of planning your future through the help of a professional financial advisor or accountant.

4. Not making use of financial advisors.

You assume that anyone can make financial decisions and that everything will work out in the end. This thinking should not be applied when it comes to how to manage your finances. As an entrepreneur, you already have enough to worry about when it comes to the operations of your business. Start consulting with people who specialize in the services you require.

5. Spending money you do not have.

Avoid this by setting a budget and sticking to it to track your money and knowing what you have and don’t have.

Create an actual budget based on real numbers that are a part of your real life. That means you need to consider costs like rent, utilities, student loans, car payments, food, and fun. Then think about your after-tax income.

You’ll also want to focus on the goals you have, like buying a car or a house and create a monthly budget that incorporates saving for them as much as possible. Get a professional to help you create and follow a budget to help you avoid overspending and keep you on track to responsibly plan for the future.

6. Overlooking taxes

Making allowances in your budget to include taxes can save you a lot of headaches when planning your finances. Be aware of tax deductions, rebates, or exemptions that can apply to your current situation. If your job automatically deducts taxes from your salary, get in touch with your accounting department to ask about exactly what the deductions pay for. And if you’re running your own business, ask your accountant to help you stay prepared.

7. No retirement plan

Always remember that you’re never too young to look into a retirement plan. Problem is, putting off retirement plans for too long could lead to you still not having anything saved up decades down the line. Apply the same mindset to retirement as you would saving up for emergencies, with the key difference being that retirement is more of an active investment in your future.

There are many ways you can prepare for retirement: Invest your money in a private retirement scheme, investing your money, or even increasing your pension fund contributions at your workplace.

The bottom line when it comes to financial mistakes is that you have to steer yourself away from the dangers of overspending and under planning.

Start by monitoring the little expenses that add up quickly, and then move on to monitoring the big expenses. Think carefully before adding new debts to your list of payments, and keep in mind that being able to make a payment isn’t the same as being able to afford the purchase. Finally, make saving some of what you earn a monthly priority, along with spending time developing a sound financial plan.

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