With the possibility of a complete economic shut-down during this COVID-19 pandemic, it is essential to handle your finances wisely. Financial management involves strategic planning, organizing, and directing our income in order to meet day-to-day needs. We need to have a thorough understanding of our financial inflow and outflow to be able to manage our income well. A lot of people walk through life living from hand to mouth because they cannot successfully manage their finances. To help you handle your finances properly during this period, here are some money mistakes you should avoid.
Living Above Your Means
You need to cultivate the habit of not spending above your means. What is the point of spending much more than you make? The result of this is debt accumulation, which is, by all means, not a good thing. The smarter you spend, the farther your money can go. The trick is to avoid spending triggers. It is true that we all have places, people, or things that trigger us to want to spend more. To break free from these triggers, you should give yourself a reason not to spend, such as setting a goal and keeping it in mind. Also, consider looking for a secure way to save before you spend. You can try to save with Piggyvest, Cowrywise, or any secure platform for savings.
Inability to Differentiate Want from Need
It seems everyone tends to make this money mistake. Your inability to differentiate between want and need can put you in a financial disaster. This problem makes you spend money on things that are not of primary importance. A want is said to be a choice or desire that you may or may not be able to afford or get. It is not a necessity, unlike a need, which is something that you must have to thrive or survive. Without it, you may suffer either physically or mentally. This includes the need for food and shelter. In light of this, you should build a scale of preference of the things you need or want, based on their order of priority, and let this scale guide you in spending.
Spending Every Dime You Have
Spending every dime that you earn all at once is simply not smart, and it shows how irresponsible you are. It is a grave mistake that drives you into the bondage of poverty because you will eventually end up borrowing from family and friends even before your next paycheck and when next you get paid, you have to keep servicing those debts, and the cycle continues. Regarding savings, investment is a more logical and profitable alternative. Although investing may seem to involve some risks, but taking a well-calculated risk is often a necessity in life.
No Budget Plan
Setting up a budget is necessary for financial success. It is quite easy to spend all your income on daily needs without having to save a dime. Thus, it is crucial to prioritize your spending, and this can be done by setting up a budget. A budget provides a kind of roadmap for your finances, keeping your spending under control.
Many people often see a budget as a kind of restriction or financial prison. On the contrary, a budget does not necessarily mean cutting out all the fun and frivolous expenses. A budget only minimizes the degree at which you often spend on such things. Thus, it ultimately keeps you from worrying about your financial status.
Depending on a Single Source of Income
Most people do not want to think about the possibility of being laid off or their company going under. However, these things happen more often than not, especially in this pandemic period, where the market is tough, and businesses are struggling to survive. Relying on one source of income during this COVID-19 pandemic is a money mistake that can make you vulnerable to unforeseen circumstances. Having multiple streams of income can save you from a number of issues, such as unemployment, rising economic challenges, rising health care costs, etc.
No Emergency Fund
Lots of people make this money mistake. An emergency fund is money you keep aside in the bank to cover unexpected expenses. Putting aside some funds in case of any emergency provides you with a financial buffer that keeps you afloat in desperate times, without relying on borrowing from family and friends or even seeking high-interest loans to cover expenses. The importance of an emergency fund cannot be overemphasized.