Learning how to manage your finances involves a lot of trial and error. Certain things make money work for you, while others just drain your wallet. I have had more than my fair share of wallet draining financial life lessons. There are a few financial life lessons that stand out. They are issues I see in my own life, my family and my friends.
Mistake One: No Emergency Fund
Wallet draining expenses pop up at the most unexpected time. On more than one occasion, I have found unexpected expenses tapping my budget. An emergency fund is a necessary part of life. An emergency fund has to be either cash or money in a savings account that is not already marked for another expense. In an ideal world, six months of salary will be in an emergency fund. In the real world, I try to keep between $500 and $1,000 available for whatever life throws at me. Pay your emergency fund every paycheck for a set amount. The $20 or $50 per paycheck will quickly add up to emergency savings with minimal effect on your budget.
Mistake Two: Paying Minimums on Credit Cards
This one has been a difficult financial life lesson for me. Paying only minimums on credit cards was part of the reason my debts spiraled out of control. High interest rates built up over time leaving my balances high to support my lifestyle. Credit card debt is a hole that you can get into quickly, but takes time to clear. Pay as extra on every credit card bill, starting with the highest interest rate. The debt will start to lower and you will feel the mental relief of seeing a smaller balance.
Mistake Three: Over-insuring Automobiles
I own a low value vehicle that is over ten years old. If I were in a collision, my comprehensive and collision would not pay much for my vehicle. It just did not make sense to continue coverage and just maintain liability insurance. My insurance premiums dropped by 35% just by not having that coverage! That freed up a lot of space in my budget.
Mistake Four: Not Saving For Retirement Young
For several jobs, I was not worried about saving for retirement. As a result, I am far behind my goals for creating a secure nest egg for my retirement. Even 2% or 3% of your salary placed into a retirement account can make a large difference in your golden years. The younger you start, the more funds you will have access to during retirement years. Now in my 30’s, I am thinking ahead and taking advantage of my current employer’s retirement program to get myself back on track. The money comes out before I get my check, so the savings grows before I notice it. No matter what your age, retirement savings should be part of your work life.
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