What mistakes should you avoid in 2021 for a better financial life?
The primary thing that you need to look at in 2021 is that you need to cut down expenses and save as much as you can. The experts are predicting an economic recession soon. Therefore, it is quite important to shield your financial life from disaster as much as possible.
Here are a few financial mistakes to avoid in this new year, 2021, so that you can have a good financial future.
Mistake 1: Saving a little bit in your emergency fund
You would ask why is it a mistake to save for an emergency fund? Well, it is a mistake to save a meager amount in your emergency fund. Your rainy day fund should be such that with which you can sustain for about 6 months without a job.
Therefore, calculate how much you need, to meet your necessities, every month. The calculation will help you to decide on how much you need to save in your emergency fund and how to go about it.
However, you can start your emergency fund by saving a little every month, especially if you’ve faced a job loss or a pay cut. Gradually increase the amount. You can put the extra amount, you get from a bonus or as a gift, into your emergency fund.
Mistake 2: Not planning a budget since you can save every month
Many people in our country have no idea how much they spend every month; it is because they don't have a budget.
Do you think that if you plan a budget, your life will be restricted since you’ll have to spend as per your plan? Well, a realistic well-planned budget can help you enjoy a good lifestyle. It will help you spend on which you value more.
Therefore, if you don’t have a budget, plan one. Try to make it as realistic as possible. It will help you save a substantial amount every month along with meeting your necessities and having money for splurging a bit, too.
And, if you already have a budget, review it from time to time and make modifications according to the change in your life events.
While planning a budget, always remember to pay yourself first; that is, to save a required amount, about 20% of your income, and then planning your expenses with the remaining amount.
Mistake 3: Keeping up with the Joneses
At some point in our life, we all have purchased something just because one of our friends bought it. Isn’t it true?
But, if you live within your means and purchase something you value, you can keep debt away and be stress-free.
If you like something, wait for a week and see whether or not you still like the item. If you still feel the urge to purchase it, plan your purchase. If you’re swiping your credit card, then make sure you can repay the debt on time.
Mistake 4: Not making your home loan manageable
Refinancing can be a good option since the mortgage rates are record low. So, if you’ve been paying back your mortgage at a higher rate of interest, shop for a better home loan.
Do you know even if you can manage to get a 1% reduction in your mortgage interest rate, it will help you save a substantial amount over the life of your home loan?
Therefore, shop for your home loan, compare the terms and conditions, and refinance your existing home loan with a new one if you find a suitable deal.
Mistake 5: Living in a big house even if you don’t need it
If you don’t require a big home since your children have moved out, consider downsizing your home. It will help to lower your house expenses.
You can also think of giving your extra garage or extra room for rent. However, while doing so, make sure that it’s not hampering your privacy.
Likewise, if you look at your home, you can find a lot of things which you don’t need anymore. Collect these things and organize a garage sale. The amount you get, you can deposit into your emergency fund or use it to become debt-free. It will help you to make your house clutter-free, too.
Mistake 6: Not having enough insurance coverage
Having just insurance coverage is not enough. If required, contact an insurance advisor to check out how much coverage you need.
If you don’t have the required coverage, having insurance policies might not be of any help to you.
You should have required home insurance, car insurance, health insurance, along with life insurance coverage if you have dependents.
Mistake 7: Rolling over your debts from one month to another
If you pay only the minimum amount on your credit cards, then you’ll have to shell out more on paying interest unnecessarily.
The best way to use credit cards is to repay the entire balance at every billing cycle. It will help you to stay away from debt and also improve your credit score since you can show that you can manage your debts well.
However, if you’ve accumulated a substantial amount of debt and thinking about how to pay it off, you can take professional help. Depending on your financial condition, you can enroll in a consolidation or settlement program and repay debts as soon as possible. However, before you take professional help, make sure you choose one from the best debt settlement companies in the USA so that you can get the best help.
Mistake 8: Start saving when you have paid off the entire debt amount
It is indeed important to repay your debts. However, do not wait to save until you’ve paid off the entire debt.
Try to save a little bit and repay debt simultaneously. By doing so, you may take a little longer to repay the debt but you can save a substantial amount along with paying back debt at the same time.
So, are you ready to avoid the mistakes and start the new year afresh? Do not worry about the past; be optimistic and welcome the new year full of optimism. Manage your finances well and a great financial future is awaiting you!
Guest written by Good Nelly