Common Personal Finance Mistakes

Properly managing your personal finances may be the most important skill in life, but it is a skill that far too many people lack.

While you may be able to get away with making a few mistakes, you will eventually find yourself in financial hardship.

Luckily, it is very easy to correct any financial mistakes you are currently making. These are the five most common personal finance mistakes that you need to avoid at all costs.

Living Above Your Means

It is simply impossible to make progress with your personal finances if you are living above your means.

Going on extravagant trips, buying the latest clothes and eating at a fancy restaurant every night may be a great way to live, but it should only be done if you have enough money.

If you are struggling to survive until your next paycheck, then you need to make some serious changes. You will be amazed at how much money you have when you cut out all of the unnecessary expenditures.

Using Too Many Credit Cards

Credit cards are a great way to increase your credit score and gain exclusive rewards, but they must be used wisely. Unfortunately, most people simply are not using their credit cards responsibly.

The average American has nearly $16,000 in credit card debt. Your goal should be to pay off the balance of your credit card at the end of every month.

This is the only way to reap the benefits and rewards of the card without incurring any interest charges. If you allow yourself to get into debt, then you may never find a way out.

Failing to Set a Budget

The only way you can truly learn everything there is to know about your personal finances is by setting a budget. The budget will let you see exactly how much money you are spending on every aspect of your life.

The basic budget goals are to spend no more than half your income on mandatory expenses. You should also strive to save at least 20 percent of your income.

The rest can be used on things you want but do not absolutely need like entertainment, gym memberships and clothing.

No Emergency Savings

Life is completely unpredictable, so you never know when you will be faced with a huge unexpected expense. The only way to be prepared for an unexpected expense is by having an emergency savings fund.

Creating this savings fund will remove all of your stress if you are forced to pay for a car repair or replace an expensive household appliance. It will also help keep you from using a high-interest credit card or short-term loan.

Gaining a ridiculous amount of debt is the last thing you need to happen during an already tough time in your life.

Living Paycheck to Paycheck

Many families live paycheck to paycheck. If an emergency arises, the result can be a disaster. It is recommended by experts that you should keep at least three months worth of expenses in an account where you can access it easily.

Conclusion

Think carefully before taking on new debt. Make sure you can realistically afford any extra payments before you do. Do your best to save money for when you need it most.