With the new year finally here, now’s a good time as any to start being more financially responsible. Even if you’re an avid saver, falling into a financial pitfall is much easier than you may think. This is why it’s important you take the necessary steps to prevent losing control of your finances. It all starts by knowing what kind of issues there are to avoid. Here are four of the most common financial pitfalls to avoid in 2022.
Frivolous Spending
You’d be amazed at how much money people spend for no reason. Perhaps you’ve even done it yourself by seeing that once in a lifetime deal or something you wanted caught your eye and you just couldn’t resist. Some people even spend money just to be a part of a buzzing trend. Either way, needlessly spending is a surefire method to drain yourself of valuable funds.
Sure, the occasional splurge here and there is completely fine. Everyone does need to treat themselves every once in a while. However, there’s a difference between treating yourself and wasting your money. Don’t let the temptation fuel impulsive decisions. You’ll be surprised at how much money you can save by simply looking the other way.
You Don’t Have a Budget Set in Motion
Budgeting is a skill everyone needs to know. A budget is a financial plan you set for yourself by going over your monthly income and expenses. How it works is that you calculate the total amount of money you earn and subtract various costs from it to see how much you’re left with. These expenses can include:
∙ Mortgage payments or rent
∙ The utility bills
∙ Groceries
∙ Insurance payments
∙ Car payments
∙ Paying for gas
∙ Eating out
Another expense involved in your budget are student loan payments. Student loan payments can cost more than your average expense, which can leave you with very little left over. To prevent yourself from being depleted of savings, a great option is to refinance your student loans into a new one through a private lender. A private lender is ideal when it comes to refinance student loans. They can lower your lower interest rates and usually offer better repayment terms overall.
Not Putting Savings into a Retirement Account
Eventually, your duty in the workforce will come to an end. When that happens, you’ll lose your main income stream, which is why putting money into a retirement account is imperative. While you can start putting money into the account at any time, it’s highly recommended you start doing so at your earliest convenience. You can even open a retirement account as young as 18 years old.
Not Having Emergency Funds
Perhaps the most impactful financial pitfall is not having emergency funds to help protect your assets and to fall back on in a time of need. You never know what can happen in life. You or a family member may need extensive medical care or you may find yourself not having enough of your primary funds to pay bills. This is where your emergency funds come in. The recommended amount of emergency savings should be at least three months of your monthly income.
