This blog is meant purely for educational discussion of finance. It contains only general information about financial matters. It is not financial advice, should not be treated as such.
In this era of uncertainty, having a plan is always a good idea. Getting your financial life in order is the first step.
Many thought that the 2008 financial meltdown was a "once in a lifetime" event. Then, COVID-19 came along and showed us these financial downturns are just part of normal life; ones bigger than others. Facing financial uncertainty back in March made me get my act together. Many think they are immune from recessions. Guess what, in 2008, even doctors, "the recession proof profession," were facing financial hardship. Fast forward to 2020 and the same scenario is being relived. Primary care physicians clinics are closing down and procedures are down.
Here are the 7 most common financial mistakes:
1- Not having an Emergency fund - This is the first and foremost mistake. Keep at least 6 months worth of expenses in a savings bank account. This is only to be touched in the case of an emergency. If you lose your job for some reason or an unexpected health crisis, how will you pay rent/mortgage, groceries, car, gas etc?
2- Credit card debt - Given the high interest charged by credit cards, this is always a bad idea. The average interest rate is 18%. If this starts accumulating, soon you will find yourself in financial ruin and creditors knocking on your door. Plain and simple: "If you cannot afford it now, what makes you think you will be able to afford it later".
3- Not contributing to your company/job sponsored 401k/403b - Lets face it, Social Security and Medicare most likely will run out of money in ~10 years. If you do not have an emergency cushion to fall back on, you most certainly be in a precarious situation.
At least contribute the minimum to get the match from your employer. Think of it as free money.
4- Buying a new car- As soon as you drive out of the car lot, the price will drop and keep dropping throughout the life of the car. Instead, buy a certified pre-owned. The initial depreciation will have happened and usually, CPO's are in a good shape to last you years to come.
5- Paying late fees- In this day and age, all of your payments should be automated. This way, you will save yourself a late fee and future headaches.
6- Not having life insurance- Lets face it, in these days, you can get term life insurance for a few hundred bucks a year. You and your family deserve peace of mind. You will leave your family some money and expenses paid off.
7- Renting- Living rented is never a good idea. Real estate is one of the great wealth builders. Take advantage of it. Not only will you be able to deduct the interest payment on your mortgage to your taxes every year, but your property will almost always increase in price over time at the rate of 1-2% per year. Over time you are paying down your own property, not someone else's.
Hope this helps.
Till next time,
JL