November 13, 2009
Common Errors When Handling Money
It is said that money makes the world go round, but it is surprising just how many errors people make when handling money. Financial planning or money management is important because using money wisely is just as important as making money.
Giving control of your money to another party
If you are not the one handling your finances, your money will be at risk. You should not trust anyone with your money because we all have different uses for money and we all have different views on what should be saved, what should be invested, and what should be used. Couples should handle financial matters together to avoid problems when one partner dies. Business partners should also handle financial matters together. Although you can have a mutual fund or a brokerage house handling your investment, you should always make the final decision on what is to be bought and the amount of money to be used in the investments.
Failure to set goals
It is said failing to plan is planning to fail. If you do not have a goal, you will end up accumulating your money in a bank account. This is not wise because something might come up that might require you to spend the money. If you had invested the money, you would search for a more creative solution. You should have clearly defined goals and you should visualize them.
Not saving enough for retirement
People in their 20s and 30s think they have all the time in the world to save for retirement. The truth is you should start planning for retirement as soon as you start earning because nobody knows about the future. You may lose your job or you may get a career ending injury at an early age. The best way to prepare for retirement is to do long term investments. Bonds are particularly useful in long term investing because they are usually guaranteed by the government and they have a high return.
Not having any emergency fund
It is important to have an emergency fund. With an emergency fund, you will not be forced to use money you had invested or money you had set aside for other purposes. The emergency fund should be separate from your savings and you should consider having a separate account. You should have a fixed amount that you contribute to this account every month.
Co-signing for loans
Co-signing for loans is a big mistake people make, especially when the loans are big. Many of us are tempted to co-sign for loans when it is a friend or a family member asking you to vouch for them – many of us think this is harmless. The truth is that you are responsible if the person does not repay the loan. You should only agree to do this if you are sure about the person’s ability to repay the loan and if you consider what the person wants to do with the money to be a viable venture.
Being in too much debt
You should never spend beyond your means, even if you have a credit card that allows you to do so. You should pay cash whenever possible and you should only buy things you actually need.