Money is a crucial commodity almost everyone needs to survive. We spend our lives chasing it, hoarding it, spending it, and for some, creating and multiplying it. Given how important money is, it’s almost surprising how mismanaged it often is. Personal financial management seems to be one of the hardest things for people to do, including the rich themselves. Being able to manage money in one moment, month, or year, doesn’t mean a person will always do a perfect job. Here are some common money mistakes to watch out for.
1. Not tracking your spending
Anyone who has a source of income has to know how much they are spending at a given point; how and where. Not keeping track of your cash flow opens you up to poor financial decisions. It means you have no notion of where your money is going, and how much of it you’re using on certain things. It’s difficult to manage money when you only have a vague idea of how you’re using it. A simple remedy is having a budget and sticking to it, or using a spending application to track your finances. Without tracking your spending, it’s also easy to spend much more than you earn, another foolish mistake.
2. Spending more than you earn
One of the biggest struggles people have when it comes to money is living beneath their means. Not just living within their means, but beneath their means. Living within means your income and expenditure are almost at par, but beneath means there’s excess money left after spending. Spending more than you earn means you’re always in debt, whether you realise it or not. It’s easy to buy products, whether necessary or luxury, on credit without realising that you’ve exceeded your income. This happens when people don’t consciously track their spending, and have no budget, which is ill-advised. Should an emergency arise, it could easily be a disaster.
3. Not having an emergency fund
Which is why not having an emergency fund stashed away somewhere is a recipe for disaster and foolish mistake number three. Unplanned scenarios happen all the time, and when you’re not prepared they can be a financial drain. Medical emergencies are often the most common, whether happening to you, or someone close to you. Other emergencies like fire, burglary and the death of a loved one can also happen. Even less life-threatening events like the breakdown of your vehicle can also cost you. It’s always wise to have some money saved for a rainy day.
4. Not preparing for retirement
Retirement seems entirely far-fetched, and faraway when you’re still young, but it’s very real. The best time to prepare for retirement is before retirement, when you’re still young and earning. For people who are employed, some organisations will force retirement once a person reaches retirement age, and this is quite common in Zimbabwe. Saving for retirement is crucial when you’re young, although that’s a little tricky in Zimbabwe given our economic instability. However, there are ways to save and prepare for retirement that are not strictly reliant on liquid funds, such as investing in stocks or property.
5. Investing without knowledge or research
Investing isn’t only for retirement purposes, but to increase your wealth as well. Investing can result in handsome passive income for the investor, but when attempted ignorantly it can backfire mightily. Investing without prior knowledge on how the market you’re interested in works, the trends, and the pitfalls, is a dangerous game that can cost you buckets of money. The idea of investing and becoming wealthy can be exciting and seductive, leading people to start throwing their money in investment options recklessly. It is always advised to research investment options and the market, or hire an expert to assist you in the process and if funds allow, to manage your portfolio for you.
Money is the currency of the day, and whoever has it, or lots of it, has power. Not having money often robs you of power in society. It’s quite possible to earn money, and to multiply it too, but with poor management we’re prone to make foolish mistakes that will cost us in the long run. Manage your money consciously and avoid these common mistakes.