Home' Trinidad and Tobago Guardian : August 24th 2014 Contents AUGUST 24 • 2014 www.guardian.co.tt SUNDAY BUSINESS GUARDIAN
INTERNATIONAL | SBG23
Many people around the world find
themselves struggling with debt on
a daily basis. The recession has shed
light on how poorly many people
manage their finances. Debt,
decreased savings and increased
expenditures are some of the pitfalls
that can seriously derail your finances. Avoiding these mistakes
can make a huge difference in terms of financial security. It s
true that, when it comes to money, we all make mistakes. Our
personal finance lessons are often learned through experience.
However, it is important to realize the mistake and prevent
it from happening again. Here we have gathered 10 of the
most common mistakes made in personal finances; avoiding
these errors can help you build financial security.
1. Spending More Than You Earn
This is the cornerstone of personal finance, regardless of
your income or net worth. It doesn t matter how much you
earn, but if you live within your means, you can save money
in long term. It is simple math: income < expenses = debt,
while income > expenses = surplus. Although buying a couple
of things here and there might not seem to have much sig-
nificance, it can make a huge impact over time. Frivolous
expense such as ordering out for lunch or dinner or going to
movies at peak time can add up and drain your bank account.
Ideally, you should save and invest a percentage of each paycheck
or income source you have.
2. Not Setting a Budget
One of the main reasons behind frivolous spending is not
having set a budget. A monthly financial budget helps you
calculate how much you are supposed to spend in the entire
month. It is calculated by considering your total income, your
fixed monthly expenses, debts and any other liabilities. Your
monthly budget should also take into consideration the amount
you should be saving for retirement or a rainy day. Once the
monthly budget is set, you can spend accordingly.
3. Ignoring the Need to Save for Retirement
Most young people think that retirement is simply too far
away, so they can think of retirement savings later on. Actually,
people grossly underestimate the true cost of retirement, and
when and how much they should start saving.
4. Not Understanding the Importance of Your
Credit Score and Report
Most of us often ignore our credit score. The credit score
and credit report are essentially a record of how you have
handled your finances over time. These two records actually
determine whether or not you will be eligible for thousands
in savings when you make bigger purchases. To improve your
credit report and credit score, make sure you always pay your
credit card bill on time, and dispute any mistakes on your
5. Having Too Much Debt
To put it simply, having debt stinks. If you owe money, then
you are just reducing your cash flow to make the payments.
Clear off your debts as early as possible to help increase your
savings. If you do acquire new debt, do it cautiously and only
after researching the best loan options.
6. Investing Too Much in a House
For most of us, buying a home is our biggest investment.
Many people end up investing all of their savings and other
funds to buy a dream home that is way beyond their budget.
Living your dreams is great, but jeopardizing your financial
situation in the process is not smart. Big or expensive houses
also come with unnecessary added expenses, such as higher
utility bills, maintenance costs and taxes, beyond the initial
7. Living Paycheck to Paycheck
Most of us spend our entire paycheck and wait impatiently
for the next. Living life to the fullest has become the motto
for many people, and this leads to spending everything they
earn without thinking about the future. Dinners, movies and
drinks have become essential aspects of our lives, and we
forget how easily our financial situation can take a turn. This
puts one in a horrible position of being without any money
if a paycheck were to be missed.
8. Not Having Enough Insurance
Insurance is a crucial emergency fund that supplements
your cash emergency fund. It covers the things you could not
save up to cover in advance, thus helping protect your largest
assets in case of a major accident, injury or death. You should
have enough insurance to replace your assets in case of extreme
need. This may include auto insurance, home insurance, health
insurance, long-term disability insurance, life insurance and
long-term care insurance. However, it is also important that
you don t go overboard in buying insurance. Take a balanced
view and only pay for what you truly need.
9. Having High Car Payments
Car loan payments cause many people to find their heads
under water financially. We all know that a car is an asset
whose value starts to go down the day it is purchased. Most
people spend thousands of dollars on a new car only to find
out that its value is seriously depreciated after a couple of
years, while they are left having to make payments on the car
loan. A car is a big investment, so spend judiciously on it.
Buy a pre-owned model to minimize your loan payment and
save enough for tough times.
10. Not Getting Professional Financial Help
High interest rates, huge expenses, lower income, more lia-
bilities -- at times all these factors can leave us confused.
Despite trying hard, we are unable to come out of the vicious
circle of debt. If you honestly need help with something --
such as taxes, real estate investment or debt management --
don t try to go it alone. It is wise to seek professional help
if you really need it. This may make it much easier to analyze
your situation and make the proper financial plans for the
present and the future.
Ten financial mistakes
that can make you poor
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