8 common mistakes in financial planning
By Parasolla | Updated on Sep 12, 2022
8 common mistakes in financial planning
Financial planning is one of the most important things in our life because it allows us to control our money easily and gives us the ability to save and invest our money in the right way.
In this article, we are going to give you 8 common mistakes in financial planning you should avoid to build a budget and control your money in the right way.
1. Spending randomly
The first mistake that a lot of people do is spending money randomly without having any goals. This kind of attitude can destroy your financial plan for the present and future as it will not give you a chance to save money or invest money for the future.
So, the first thing you should do when you make a financial plan is to create an effective strategy for spending money to save more money and get the desired financial goals. Also, you need to analyze your situation to know what you need and what you want. This means you should distinguish between needs and wants to be able to control your spending.
In conclusion, you should understand that having a strategy to spend money means that you should save more money every month. Otherwise, you waste your time.
2. Borrowing Money without having goals
The second problem you may have when you spend money randomly is “the empty pockets”. As you buy worthless things without goals, you will keep losing your money without benefits.
As a result of having empty pockets, you borrow money from others to cover your spending. And that money will become debts that you should pay it later!
To avoid this problem, you should make a plan to manage your spending to save more money instead of spending it. Also, you should try your best to avoid debts as they will affect your financial budget significantly.
However, if you have some bright ideas such as starting a business or buying real estate, you can borrow money or get a bank loan to do that as these ideas are good investments for the future and you can sell them whenever you want.
3. Buying a NEW Car
Getting a car is not a problem if you knew how to buy it at the right time. This means you should buy a car for a reason. For example, you can use your car to go to work every day to save the transportation costs. Or, you can buy a car to use as a taxi.
Buying a car for a reason is not a problem but the problem is buying a new car. Getting a used car will not affect your budget negatively because it is somehow cheaper than the new one. Also, the new car loses about 11% of its value when you drive it for the first time, and about 50% of its value after three years. In conclusion, buying a new car is one of the worst “investments” you can do because the car price is not constant like real estate and it decreases every day.
4. Not having a professional financial plan
Making a random financial plan is easy but the question is what is the benefit of that plan if it can’t achieve your goals!!
So, the first thing you should consider when you make a financial plan is the ability to achieve your financial goals. For example, you can save money for multiple years to buy a home. Or, you can save money to start a business.
As a result, you should make a professional plan that can achieve your short and long-term goals. To do that, you need to create a plan that includes all your money transactions such as spending, savings, investments…etc.
Also, you should consider editing your plan every month to get a better result.
5. Not saving enough money
As we’ve mentioned in the previous paragraphs, you should make a plan for a reason. And one of the most important reasons is saving more money.
Saving money is one of the main factors that help you grow in the future and achieve the financial life you want. So, you should make an effective strategy to save more money to use it in the future. For example, you can save money for two or three years to buy a house.
To save more money, you should determine the exact money you need to save every month. Also, you should know how much money you should get in the future. In this way, you will know if you save enough or not. In addition, you will understand if you are on the right way to achieving your goals.
6. Not Investing
In the previous paragraph, we talked about saving money for a reason. One of these reasons is investing your money.
One of the biggest mistakes that a lot of people do today is NOT investing their money. Instead of that, they spend their money on temporary things that lose their value fast. For example, they save their money for years to buy a new car that may lose more than 40% of its value after three years.
To avoid losing money, you need to create a strategy for investing because without investing money, you will keep working to get the same salary.
There are a lot of ways to invest but we recommend you try something that you are an expert with it. For example, if you are a mechanical engineer, you can invest your money to buy and sell cars staff. In this way, you will reduce the risks because you are an expert in this field of trading.
7. Having a little emergency fund
Not saving money is a big problem but the disaster is NOT having money for emergencies!
The equation is easy. If you don’t have enough funds, you will borrow them in the future when you have an emergency. And all of that money will become debts to you. And you must pay it back again with benefits. This means having trouble when you have an emergency and after it!
8. Buying worthless assets
Worthless assets are the things you buy and they lose their value in the future. This kind of attitude affects directly your budget and it is one of the biggest mistakes you do when you make a financial plan.
To avoid spending your money on these things, you should assess everything before buying it. Hence, you should know if the asset you want to get is an investment or an asset that will lose its value in the future. In this way, you will understand when you should buy and when you shouldn’t.
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