The kind of decisions you make concerning your finances play a huge role in determining whether you will attain financial success or not. When it comes to building wealth, saving money, and achieving money goals, you must learn to avoid making the worst financial decisions.
To help you get your finances in order, this post has revealed some of the most terrible financial decisions you should never make. Hopefully, this will improve your money mindset and give you insight into how to handle your finances intelligently.
What Are Bad Financial Decisions?
Bad financial decisions are the wrong actions or practices that cripple your finances. When you make bad decisions concerning your finances, you may find it difficult or impossible to save money, invest, build an emergency fund, or accomplish certain financial goals.
Examples Of Bad Financial Decisions
There are so many ways people make bad financial decisions. Nonetheless, here are a few of the most common examples of poor financial decisions:
- Making Impulse Purchases
Spending your money on things you never budgeted for is impulse buying, and that’s one of the worst financial decisions you should avoid completely. Most times, impulse buying leads to piled-up credit card debt. When you keep buying things impulsively using your credit card, you will have a huge balance to pay by the end of the month.
- Living Paycheck To Paycheck
One of the biggest financial mistakes you can ever make is exhausting your salary before the next paycheck arrives. It’s called living paycheck to paycheck, and it prevents you from growing your income and achieving big financial goals.
If you’re currently stuck in this situation, you need to do something about it immediately. Here’s a post that will teach some of the best strategies on how to stop living paycheck to paycheck.
- Exhibiting Bad Money Habits
Practicing bad money habits is another example of making a poor financial decision. When you practice habits that don’t help to improve your financial life, but instead pull you down, then you’re simply making a very bad decision.
It’s important you painstakingly scrutinize the habits you have concerning your finances. Make sure you exhibit habits that will help you boost your cash flow, achieve money goals, and ultimately succeed financially.
How To Recover From Bad Financial Decisions
Recovering from the bad financial decisions you’ve made is not easy, yet it’s possible. Here is a four-step guide to help you recover successfully:
- Acknowledge Your Mistakes
You can’t solve a problem if you haven’t identified it. Hence, you must acknowledge your financial mistakes and forgive yourself.
Once you have forgiven yourself, the next thing is to learn from those mistakes that affected your finances initially. Some of the world’s most prominent billionaires acquired their wealth and became successful by learning from the worst financial decisions they made in the past. You too can improve your finances by learning from your mistakes.
- Take Action To Improve Your Finance
Self-motivation and big aspirations are not enough to take your finances to the next level. You can need to take practical steps to achieve that. Reduce your spending drastically and live below your means. Invest and save your money if you have to. Taking these steps and more to revamp your financial life is the only way you can make things better for yourself.
- Learn From Others
Learning from others is a great way to make the right financial decisions. Examine your circle of friends and identify a few who are succeeding financially. Learn their methods and apply them to your finances.
On the other hand, you can read books on personal finance to learn how to save, budget, and invest money the right way. You can check out this post that lists the 10 best personal finance books of all time.
- Develop Good Money Habits
Habits help shape our lives for either good or bad. If you genuinely want your finances to experience any improvement, you need to start exhibiting better money habits.
From avoiding impulse buying, planning for big purchases, and budgeting your money, there are so many things you can habitually do to succeed financially. Besides, if you have bad money habits, you can recover from them by developing good ones.
9 Worst Financial Decisions To Never Make
If you want to grow financially, here are some of the worst financial decisions you should never make:
1. Not Saving From Your Monthly Income
It’s very dangerous to live without savings. For your financial safety, you are meant to have some money in your emergency fund or savings account for retirement. You can’t achieve this if you don’t save from your monthly income.
No matter how small your salary is, you need to reserve a little cash that should be transferred to your savings. If you consistently maintain this habit, you will thank yourself in the future.
In a situation where you can’t realize enough money to save after spending on your expenses, then you must reduce your spending by cutting down on your living costs drastically; you can save some extra cash every month. Also, you can choose to increase your cash flow by getting a second job or starting a side business.
If you are clueless about how to save money from your paycheck, check out this post that shares helpful strategies on how to save money from salary.
2. Spending Lavishly In Your 20s
If you are in your 20s, you must be careful about spending your hard-earned money. Your 20s are the best years to build a stable financial life and plan for the decades ahead. As soon as you earn your first paycheck after leaving college, avoiding bad financial decisions should be your priority.
Don’t try to impress anyone by living large in your 20s when you should be saving and investing to secure your future.
One good reason you must take advantage of your 20s is that you have few responsibilities to worry about. You’re probably not married, and neither do you have a child you need to cater to. All you need to do is take care of yourself, which doesn’t require much. This means you have a great opportunity to manage your income efficiently while embracing investment opportunities.
However, the moment you begin to live lavishly at this stage of your life, you are making one of the worst financial decisions in your 20s.
3. Making Big Irrelevant Purchases
Spending money on large purchases that are of little or no importance to you is a very bad money habit, and it’s one of the worst financial decisions you must never indulge in.
Most times, credit card debt comes from big purchases that you didn’t budget for in the first place. From buying that expensive T-shirt to paying for that fancy home appliance you found online, you are simply wasting your money.
If you must purchase anything that’s unusually expensive, make sure you plan toward it. This means you need to consider that big purchase a financial goal by saving money every month for it.
Also, ensure that the item you intend to purchase will serve a significant purpose. Making bad financial decisions usually starts with buying things you barely need. Avoid this.
4. Failing To Pay Off Your Credit Card
If you want to learn how to stop making bad financial decisions, avoiding late credit card payments is one of the things you must do. Failing to clear your credit card balances when due only leads to more debt. Moreover, you would have to spend money on a high-interest rate due to late payments.
You can avoid this financial difficulty by paying your credit card balance early. Also, ensure that you don’t overuse your credit card, so it doesn’t become too difficult to pay off every month.
5. Not Budgeting Your Monthly Income
Not budgeting your income every month has to be one of the common worst financial decisions you should avoid. Knowing how to budget your money is an essential skill you need to manage your finances effectively.
A good budget is the only thing that can help you organize your expenses and prevent overspending. If you are currently not budgeting your take-home pay, it’s high time you change your mindset and do the right thing.
6. Not Building An Emergency Fund
One of the best ways to build a financial wall to secure your money is by setting up an emergency fund. An emergency fund is your go-to wallet when you need to make impromptu expenses that are very important.
Things like medical bills and car troubles can’t be predicted. If you want to handle expenses like these without feeling anxious, you need an emergency fund. Besides, you can lose your job anytime or another pandemic can break out and send everyone into lockdown.
Make it a point of duty to save a certain amount of money from your salary every month in an emergency fund. It doesn’t have to be a lot of money. You just have to be consistent with the savings. It could be a few hundred dollars or 1,000. After completing a one-year circle, you must have saved a significant sum of money.
More importantly, make sure you use a bank account with a reasonable ROI on your savings.
7. Not Investing
If you aren’t investing your money, even if it’s a little sum, you’ve made one of the worst financial decisions. Most people aren’t investing because they believe they need to be an expert in the stock market to make good investments, and that’s just a myth to stop your financial success.
Investment has become much easier, especially due to technology. All the basic knowledge you need to invest in the stock market, real estate, or business is online.
Moreover, if you are a bit scared of making any investment, you should seek help from a financial advisor. A competent financial advisor can help you build an investment portfolio depending on your risk tolerance and financial capacity.
8. Failing To Have A Backup Plan
One of the worst financial decisions ever is not having a backup plan. If you want to be protected from unplanned and emergency occurrences, you need to have a backup plan in place – a solid one.
A good backup plan comprises two basic things – a fully-funded emergency fund and ideal insurance on health, life, auto, home, disability, and whatnot.
Having these things planned for is a great way to secure your financial life and be ready to face the unexpected. While learning how to avoid making bad financial decisions, don’t fail to develop a backup plan. It’s highly essential.
9. Failing To Protect Your Personal Information
One of the downsides to using the internet in today’s world is having to face identity theft and credit fraud. This is more than enough reason why you must secure your personal information.
Pieces of information like your mobile number, address, and date of birth can be accessed by hackers and scammers online. In a situation where you fall victim to a scammer, financial loss can be critical.
However, you can prevent this by protecting your data online. Ensure you always stay on top of your credit reports. Don’t enter your data on websites you don’t trust. Before you give out any piece of information about yourself online, make sure the site is a credit platform that is secure from any fraudulent activity.
Final Thoughts On Worst Financial Decisions
When handling money, mistakes are bound to occur. Nonetheless, learning about these worst financial decisions discussed in this post will clarify the right things to do concerning your finances.
Start taking all the necessary steps you need to improve your financial life. Start budgeting your money, learn how to save and pay off debt, and with time, you will realize how much your finances have improved.
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