It is time to give yourself a personal finance audit. After all, when it comes to eliminating common personal finance mistakes, you have to take a long, hard look from time to time to be sure you haven’t fallen into one of the many critical errors that could cost you both now and down the road.
One of the challenges is that mistakes in your personal finances don’t always show up right away. The issue only becomes apparent when it is too late to avoid the consequences. One of the mistakes people make is to convince themselves that a bad mistake can’t be overcome. The good news is that there is almost no financial error you can make that has to be permanent. Here are some of the big ones of which you should always be aware:
You Took Out the Wrong Loan
Often, the fact that you need a loan is a trailing indicator that you have made some other financial mistake. From there, you have determined that a loan is the best way to get yourself free of the first mistake. You might even be correct in your assessment. The problem occurs when you trap yourself in the wrong kind of loan for your situation.
There are different types of loans that are available to you. Do your due diligence and be sure that you are pairing the right loan with your situation. The right size loan with the appropriate repayment terms can be the key to getting you back on your feet and headed in the right direction. The wrong loan can compound your problems.
Focusing Too Much on Perfection
When striving for perfection, failure is the inevitable conclusion. There are no perfectly straight lines or perfectly rounded spheres. And there are no perfect budgets. And “close enough” is a noble goal when it comes to your personal finances. When you are overly uptight about the picayune details, you create stress for yourself and for everyone around you. Buying your child a small toy or snack is not the thing that is going to plunge your family into ruin. If it does, you have much bigger problems than an imperfect budget.
That doesn’t mean you throw caution to the wind. It just means that you have to always keep the big picture in view. That can be hard to do when you are too far into the weeds. Be a responsible adult. But don’t be the kind of stickler who misses out on all of the fun and adventure that is life. Missing out on the best things in life is a mistake you don’t want to discover only after it is too late to do anything about it.
Never Invest for Emotional Reasons
You have to learn how to keep your investing emotions in check. If you don’t, you will suffer the consequences sooner or later. Here are some of the emotional investing mistakes that almost every investor makes at least once:
- Investing in a company because you are an enthusiast of their brand
- Confusing investing with gambling
- Refusing to invest in a company because you personally don’t like the company or its products
None of these are good incentives to invest or refrain from investing. A company you hate might still be a company that many other people love. You should never invest to do a company a favor or to spite some other company. Invest in a company because it will help you and your family. Everything else is a waste of energy and money.
Don’t Let FOMO Get the Best of You
Stay away from hot tips you picked up from someone at a bar. Hot tips are usually offered for the purpose of enriching the person giving the tip. That is not to say that all such tips are scams. But they are all bad investments because they tend to prevent you from thoroughly investigating them before you have to act. There is no substitute for research and due diligence. Making an investment without taking the time to research it well is a recipe for disaster.
When it comes to common personal finance mistakes, there are far more errors than are listed here. But you will greatly increase your success by only getting the right loan for your situation, letting go of unreasonable perfectionism, putting your emotions aside when making investment decisions, and avoiding hot tips that keep you from doing proper research.
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