Many people have been arguing for years that personal finances should be taught as a mandatory class in all public high schools. Indeed, there does seem to be a need to educate the general public about how to better manage their personal finances in a manner that will help them keep their credit intact and avoid common pitfalls.
1. Tax Debts
Failing to pay your tax liabilities is a common mistake made by many individuals, which is part of the reason why the IRS is currently owed about $100 billion in back taxes, interest, and penalties. In fact, that comes out to about $10,000 per citizen on average. While many people have no tax debt, having any at all can be a stressful and financially burdensome process because you can wind up dealing with an audit or your property and assets could be seized to cover a state tax lien.
Frivolous spending is easily the most common kind of mistake because it’s also the most enjoyable. Everyone loves spending money until it’s time to reflect on how much you’ve spent and how it has affected your personal finances. With a sensible budget in place, you can still get the joy of shopping and splurging occasionally, but you’ll be doing so in a structured manner.
Ultimately, you should only be spending an amount that still allows you to save a significant portion of your income. Even if you only set aside 10% of your monthly income for saving and spend the rest, that would still be better than not having any savings at all.
3. Excessive Bills
Committing to an abundance of bills is another common mistake that many people make. It’s easy to feel like you can afford all of these different services and luxuries when you’re actually not in a position to be making that many payments every month. As a result, you can wind up having to dip into your bill money just to have some semblance of an entertainment and leisure budget. From there, the cycle of late fees and debt begins to emerge as you go behind on your payments and potentially damage your credit score, which brings us to the next point.
4. Poor Credit
Roughly 30% of all people who have a credit score fall under the “poor credit” or sub-prime borrowing bracket, which means they have a score below 601. Take a course on credit management and start taking your credit seriously or you’ll inevitably struggle more than someone who has good credit.
5. Irresponsible Investing
Finally, many people put themselves into precarious financial positions by overextending themselves to invest in some business or product idea that they really can’t afford to fund at the moment. As a rule of thumb, you should try to have a reserve large enough to cover the cost of the investment and at least 1-2 months of your current expenses. Never make an investment that could leave your other budgets short-handed.
Slow and Steady Wins the Race
Ultimately, the goal is not to get rich overnight or take huge risks with the hopes of making a bunch of money fast. While those approaches can sometimes work, if you’re trying to stay financially stable, a more gradual and calculated strategy would be advisable. By thoroughly researching each of the issues covered above, you’ll have the assurance of knowing that you’re not a financial rookie anymore.