“Easy come, easy go” as they always say. For some individuals, money seems to dwindle away a lot quicker than it is coming in. In fact, statistics show that while the United States is the 12th richest nation in the world, approximately 8 out of 10 U.S. adults are living paycheck to paycheck.
The latter is quite shocking. Many questions come to mind like where Americans’ hard-earned cash is going, what they make on an annual basis, how much they are saving in relation to how much they are spending, and how lavish of lifestyles they are living.
While since apparently 80-per cent of Americans of various income brackets is failing to responsibly take charge of their finances, not all hope is lost. Considering the following ways people sabotage their own finances, people can learn from their potential mistakes and think of adequate solutions to better manage their money.
Failing to budget properly
When you’re making and spending money, it only makes sense to know where your budget is going and how much of your budget is going to what. Not fully understanding where your money is going is much like gambling: how can you know you’ll still have money in your pocket after your blindly put your money towards things? How will you know you’ll still be financially stable?
Budgeting is all about setting financial goals and allocating a certain amount of money to everything you pay for including gas, groceries, beauty and hair products, clothes, and the like. The way you budget will strongly depend on your salary. After coming up with a proper budget, you should be able to decide what expenses you may need to reduce or limit.
Spending more than they are making
Following the Kardashian’s and Jenner’s on Instagram and watching the ACE Family on YouTube has us all dreaming we could live their luxury lives. Sometimes we get so caught up in the lives of celebrities that we forget that we still have to look at the price tags before we purchase something at the store unlike many of our beloved celebrity counterparts.
If you aren’t just living paycheck to paycheck but are constantly swiping your credit card, making frequent elaborate purchases, borrowing money when unnecessary, and going against your budget, it’s high time to snap back to reality and understand that spending more than you are making is sabotaging not just your current finances but your future finances too.
Going out to eat too frequently
We get it, working all day is tiring. When we come home after a long, stressful, busy day, we all wish we had a ready-made dinner sitting on the table. But unless you have a personal chef or stay-at-home spouse, there’s a good chance you’re eating out for most of your family dinners because you come home too exhausted and starving to whip up a bite to eat.
For a family of four, it’s not uncommon to spend $50+ a night for dinner going out. Going out every night out of the week, you’ve already spent $350 easily while your fresh produce at home is quickly rotting away, completely untouched. And if you’re eating out on your lunch breaks at work, there goes more unnecessary money down the drain. Two words: start meal-prepping.
Not having an emergency fund
Many folks never think emergencies will happen to them or their loved ones. They might consider others’ tragedies to be unlucky while they deem themselves “safe” from such. What people fail to understand is that emergencies are more than getting in a car accident or needing open-heart surgery; they also include other unexpected expenses, even more, minor ones.
Without an emergency fund set in place, how can one who is living paycheck to paycheck expect to pay for something urgent like a home window replacement, air conditioner repair, antibiotics for a strep throat infection, or a pet’s vet bill? Everyone should have at least three months of living expenses in an emergency fund to prepare for the unknown, so they won’t have to borrow.
Taking out student loans three times as much as their salary
We can all agree that education is important. But as we all are aware, education is only getting more expensive. This includes tuition fees, costs for textbooks, and other higher-education fees and expenses. Today, people are too caught up on getting into a college or university with the prestige that they forget the hefty costs they will have to pay to pursue a degree there.
If possible, save more money before starting your higher-education, take fewer courses at a time spanned over a lengthier time period, or consider going to a more affordable college or university. A majority of degrees can be achieved at non-prestigious schools. It may also be possible for you to receive student aid, a grant, or a scholarship to better afford your education.
Additionally, the important thing to remember is to never take out a student loan greater than what you can afford unless you are certain you will have a high-paying job waiting for you immediately after graduation.
Taking too long to save for retirement
Starting to save for retirement in your 20s or 30s is ideal. However, if you are past those age ranges, the sooner, the better. But the older you are when you start saving, the harder it will be to catch up as you will have to stow away more of your salary to meet your minimum retirement savings goal. After all, the amount of money you’ll need at retirement will not change.
While some people may regret spending too much time working or not having enough fun when they were younger, it is rare for anyone to regret starting saving for retirement at a younger age. After all, only a slim percentage of your income needs to go towards your retirement, and best of all, it is not taxable until you take it out at the time of your retirement.
Using their 401(k) to pay off their debts
Your 401(k) is important for a very good reason: to ensure you are financially set to retire as early as you possibly can. However, when one is dealing with debt, they may be quick to borrow money from their 401(k) to pay it off. Long-term, you’re affecting your ability to retire sooner and may even be ruining your finances for potentially the rest of your golden years.
While millions of Americans are plagued by debt, taking a loan out of your retirement plan is not the first step one should take to pay their dues. Getting in touch with consolidation providers, one can learn how to pay off their debt without going bankrupt.
Not everyone finds managing their finances a walk in the park. With bills and various expenses to pay, it’s easy to get caught up in the cycle of borrowing money and accumulating debt. On the bright side, once people understand where they are going wrong when it comes to their finances, they can contemplate ways they can make changes in how they manage their money.