The average U.S. household carries over $150,000 in debt. Poor financial planning and overspending are often to blame.
Financial planning is a long-term process. Some debts like your home, automobile, or student loan may be necessary.
Overspending and debt that creeps up over time can get you into major financial trouble. Before you know it, you’re struggling to keep up.
If life has thrown you a curveball, you don’t have to let debt take over your life. Take the steps now to plan for a brighter financial future.
Here are 7 common income planning mistakes and how to avoid them.
1. Spending Money You Don’t Have
Are you an impulse shopper? Do you go to the store for one item but leave with a basket full of things you don’t really need?
Buying more than you can afford on a regular basis can put you deeper in debt. When you’re living within your means, you have to follow a spending plan.
Buy only what you need and try to save money by looking for discounts and sales. Use coupons and rebates to make every penny count.
Getting your spending in order is the first step to taking control of your financial future and developing an income planning strategy that works for you.
2. Failing to Plan Ahead
You don’t want to wait until it’s time for your child to go to college or for you to retire before you start planning for the future. Financial planning may not be your favorite topic, but it’s one of the most important things you’ll ever do.
The earlier you start, the better your financial future will be. You want to develop your financial goals and understand how much money you’ll need to achieve your goals.
With smart financial planning, you can better estimate what you can spend and what you can save. You’ll have peace of mind knowing you took the necessary steps to prepare for your future.
3. Living on Borrowed Money
Using credit cards to buy everyday items and essentials has become commonplace. But if you’re not paying off the balance each month, you’re racking up interest on gas, groceries, and other items that are gone before you pay off the bill.
This is not a good financial practice. The credit card rates make those everyday items more expensive and allow you to slip deeper into debt.
Some people get into the habit of spending more than they earn. Over time, this can lead to financial disaster.
Pay for your essentials with cash or use a debit card. If you do use credit cards, don’t buy more than you can pay for at the end of the month.
4. Making Never-Ending Payments
Are you aware of all the small items you pay for month after month? Things like apps, music services, cable, magazine subscriptions, and gym memberships add up.
You pay for them continuously, and these payments don’t end unless you cancel your membership or subscription. If you’re making payments for things you never use, you’re simply throwing money away.
If your money is tight, take a look at what you’re paying for each month. Get rid of what you don’t use or need to create a leaner lifestyle and save some money.
5. Keeping Up With the Joneses
Some people are rich and able to spend frivolously and lead extravagant lifestyles. But most people cannot.
You may know someone who has the latest and greatest of everything, and that’s amazing for them. But don’t make the mistake of comparing yourself with others or trying to acquire things you simply can’t afford.
Before you’re tempted to buy something you may not need, ask yourself:
- Do I really need this?
- Am I buying this out of FOMO (fear of missing out)?
- What do I truly need?
Taking the time to answer these questions can make you stop and think before making a purchase you will later regret. Don’t let Instagram or social pressures affect your income planning strategy or financial future.
Make sure the money you spend and the money you save are done so with your best interests at heart.
6. Ignoring Retirement Needs
Life is hectic. If you’re working, caring for a family, and taking care of your home, you have a lot on your plate as it is. If you’ve been through a divorce or are trying to make ends meet as a single mom, it’s not easy.
Planning for retirement may not be at the top of your to-do list right now. You may think you have plenty of time to take care of your retirement needs.
You have to remember that when you retire, you probably won’t have the same sources of income you have now. You could have less money coming in but have many of the same expenses.
You have to consider your unique financial situation and your needs for the future. The earlier you begin saving for retirement, the better.
In fact, you can’t start saving for retirement too soon. Don’t overlook the benefits of your company’s retirement plan. Some companies will even match your contributions up to a certain amount.
Do the work now to prepare a retirement plan for the future so your sunset years will be comfortable and enjoyable.
7. Not Diversifying Your Investments
If you’re not investing anything, it’s time to start. If you are, make sure you are diversifying your investments.
You don’t want to put all of your money into one type of investment. This puts you at a higher risk of losing the money you put in.
If the market drops, and all of your eggs are in one basket, you could suffer a greater loss than if you had diversified your investments.
If you’re unsure about your investment strategy, talk with a financial expert. A trusted advisor can help you plan your investments, diversify your accounts, and improve your portfolio.
Avoid These Income Planning Mistakes
Whether you’re starting early or are a little late to the game, the time to start planning for your financial future is now. You can learn how to save money, make wise investments, plan for retirement, and avoid income planning mistakes.
At My Guaranteed Income, our goal is to help women create financial security. No matter your stage in life, we can help you build the confidence you need to achieve a secure future.
We’d love to talk with you about your financial needs. Contact us today to get started.