Financial literacy has a remarkable history. In a letter dated 23 August 1787 to Thomas Jefferson, John Adams acknowledged the need for financial literacy in the following words; “All the perplexities, confusions, and distresses in America arise, not from defects in their constitution or confederation, not from a want of honor or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation”.
Quite a number of us scoff at the idea of having to monitor or work on our personal finances. Muscles tense, a subtle panic kicks in, at the mere thought of wondering how much one has left to spend, minus their usual and a few unpredictable bills. It’s an all too familiar feeling. Simple math concepts we all walked over as teens suddenly start to seem like hieroglyphics. A language alien to many.
We all love making money but find financial planning quite exhaustive. Although truth be told, it can be quite tasking having to follow up on the numerous financial concepts tied to financial wellness. Buzzwords like mutual funds, capital markets, budgeting, financial planning, understanding investments, debt, the list is endless. These topics require a level of financial literacy and discipline that might not be commonplace. Personal finance is easier said than done. Money mistakes occur more frequently than you think, so you’re not alone. Here are five of the most common money mistakes that people make:
- Not saving enough
Not saving enough is one of the most common money mistakes. A lot of people get caught up in the moment and end up living from paycheck to paycheck. What you should be doing at the beginning of each pay cycle is putting some money aside in your savings. This will come in handy for an emergency
or a rainy day.
- Not Having a Budget
When budgeting, apply the 50-20-30 Budget rule. This is a simple and intuitive plan to help people achieve their financial goals. The rule states that 50% of your net income should be spent on needs, which are those bills you absolutely must pay and are the things necessary for survival. These include rent payments, groceries, insurance, health care, minimum debt payment, and utilities. The other 30% on wants, these are things you spend money on that are not essential. This includes dinners, movies out, a new handbag, vacations, the latest electronic gadget, etc. The remaining 20% of your net income should be allocated to savings and investments. This includes adding money to an emergency fund in a bank savings account, making contributions to a mutual fund account, and investing in the stock market.
- Buying Unnecessary Extras
Just before you purchase any item, ask yourself these questions; do I need it?, can I really afford it? Do you really need the latest iPhone, when last year’s model pretty much does the job? Until you are truly settled or as many say: until you can afford to buy it twice, buy things only on a needs basis, rather than a want basis.
- Lifestyle Inflation
This refers to an increase in spending when an individual’s income goes up. Lifestyle inflation can make it difficult to get out of debt, have ample savings, or meet other big-picture financial goals. This trap should be avoided at all costs. Lifestyle inflation can be tackled by consciously establishing your spending and saving amount limits.
- Not having a culture of investing
Building a habit of investing is one sure way to ensure that your money is being put to work, and with a possibility of return. Remember the parable of the talents? When your money merely sits in a savings account, it faces the risk of depreciating in value due to inflation. However, investing your money smartly will allow your money outpace inflation and steadily grow in value.
When you dedicate a bit more time to understanding your money, you’ll quickly realize that your personal finances are not as hard as you think. You may make some mistakes, but in the long run, you’ll definitely learn a lot.
These days financial advisory takes a much more digital form. The trend of Personal Finance Management (PFM) solutions, which make financial planning as simple as possible are completely revolutionizing what we’ve grown to know as financial advisory. These solutions will make you more aware of your spending habits and advise on what behavioral improvements to make at the mere touch of a button, relieving you completely of the burden of manual involvement. Setting up an automated savings plan on your chosen PFM solution, for example, is a good way to ensure that your savings goals are met and spending is capped.
KliQr has built big data computing capabilities that can categorize large sets of your bank transaction data to generate actionable insights that can empower your financial decision making. Our PFM solution is versatile enough to help you make sense out of your money without much effort, and make the most important everyday financial decisions. It will help you take charge of your finances so you can understand your spending for a brighter financial future. Learn more here; https://bit.ly/35cdNN0