Financial Mistakes to Avoid

When it comes to saving money, often the best advice is to know what not to do. Some of the same mistakes keep many different people from achieving their dreams of financial independence.  These are some common mistakes that need to be avoided.

Waiting to start retirement savings and cashing in 401ks
Most people do not get really serious about retirement savings until it is too late. Retirement savings, in fact, should start with one’s first paycheck. Through the power of compounded returns, any money saved and invested at 20 will be worth much more at retirement time than the same amount saved a couple of decades later. Furthermore, yearly contributions to tax free IRAs (the best investment vehicles available) are limited so one needs to start as soon as possible to get their full benefit.

When changing jobs, it is a horrible idea to cash in a 401k, but many people do it. Not only will tax and other benefits be lost but so will be years of compounded returns.

Not considering financial compatibility
There is no denying the financial aspect of marriage. Therefore, it makes a lot of sense consider financial compatibility when choosing a mate. Ok. Finding that right person might be hard enough without thinking too much about how they handle money, but it is certainly something worth thinking about, especially when one considers the costs of a failed marriage.

Never taking financial risks
Sure, the feeling of security of insured deposits gives peace of mind, but these will always pay lower rates over time. In fact, they often do not even keep up with inflation. The difference in returns between insured and uninsured investments over time is huge. For longer-term saving, a diversified portfolio that includes stocks, bonds and similar investments that pose more risk but offer reward need to be taken out. This of course does not mean one should invest in get rich schemes, but some risk needs to be taken.

Having nothing for a rainy day
Those who do not have anything to fall back on frequently have to take out debt, loans and use other financial instruments that, when fees are looked upon as percentages, may reach 100% or more. Life often brings unexpected difficulties and those who have reserves to deal with them can choose the better options.

Neglecting health maintenance
Protecting one’s health is a financial investment as well as a way to improve quality of life. Simply following mom’s advice and bushing one’s teeth can save very expensive dental work. Good diet and exercise can prevent a costly hospital stay.

Taking out debt
Nobody would ever just give money to a bank or other financial institution or volunteer to pay more at a store, yet many do just that by not paying off things like credit card balances in full every month. There are few instances where it is so urgent to get a product that it is worth paying even more than the purchase price. Simply wait until the price can be paid in full before purchasing.

Super sizing bills
From cars to houses, many people get in trouble biting off more than they can chew. When making major purchases, think of the longer term. Is that bigger or new car really needed? How much will be lost in depreciation? How much can be saved by buying used or going with less floor space? Not letting wants get ahead of needs, while it requires self discipline, greatly reduces living expenses.

Going without the discipline of a budget
Most people need someone watching over them to prevent excessive spending. In the absence of a real person, following a budget that sets spending below income does just fine.

Neglecting to research before buying
While there was an era when it often was not worth the extra time and expense to find the best price, the power of the internet now makes it quick and free. Even saving a small percentage on purchases adds up to a tidy sum over time.

Starting bad habits and hobbies
Costly bad habits go past giving the government extra taxes when financing smoking or drinking too much, expensive cars and the like will drain savings also. Stay away from the wrong habits and get involved in cheaper hobbies.

Avoiding these mistakes will go a long way in reducing financial problems and helping savings grow. Do not fall victim to them.