Even if you put several saving methods into practice, there are times when it seems that the money you earn is going out of hand in a very short time and you have to go into debt to buy something you need.
One of the main mistakes that are made when managing money is not keeping a budget. Andres Mórtola, financial coach, explains that “when we do not make a budget and we spend more than we earn, we incur debts to finance what we lack and there we damage the sense of credit that is beneficial if I use it to grow my wealth” .
What are the 6 most common mistakes when managing your budget?
- Not planning your expenses and getting into debt more than you should. “We can solve many of our problems, just by adding and subtracting, that is, by verifying how much money I need to live in peace,” says Mórtola. The Necessary expenses such as food, health, education and housing must be included as priorities in the budget.
- Spend to impress others or spend to lift our spirits. The financial advisor recommends the long-term solution, which is to make a life project. This implies not spending on unnecessary things.
- Not having a financial adviser. If you have problems with your finances, a financial adviser can be in charge of reviewing your budget and cutting or increasing areas that need it. It would be important to use some record, either physical of your income and expenses, or through an app.
- Not taking advantage of compound interest. “When we have savings, we must begin to learn to use the power of compound interest, as this is the formula for achieving wealth,” says the finance coach. Compound interest is the “interest of a capital to which its revenues are accumulated so that they produce others.” Example: If you deposited $1,000 into an account with an annual interest rate of 2%, you would earn $20 ($1,000 x 0.02) in interest the first year.
- Do not start generating passive income or diversify our income. One of the main mistakes that is made is to depend on a single income. Passive income is those activities that generate economic benefits without the need to do any particular type of work. Whether through an investment, as a passive income, it is important to diversify. Another idea may be to have a second home that can be rented to generate a monthly passive income.
- Not managing emotions when shopping. Buying on impulse or to take advantage of promotions is something that will create a hole in your pocket. By controlling emotions, finances are better controlled, explains Mórtola. A good trick is to analyze a purchase for a period of time to define how necessary the good is in your life. Another way is to determine how many hours I need to work to get that good or product. (YO)
Source: Eluniverso
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