Question

Following a financial plan is fundamental to long-term financial well being. Steps taken in the short term directly lead to long term outcomes.

Describe some common money management mistakes that can cause long-term financial concerns.

Answer 1

Some common money management mistakes that can cause long-term financial concerns are enlisted below :

1. Failure to Review Accounts : This might be the easiest money management mistake of all to avoid. All we have to do is pay more attention to our financial accounts on a regular basis. This involves reviewing statements, talking to financial advisers and then taking appropriate action. However, failure to do this can be costly.

2. Lack of Retirement Planning : Retirement planning requires looking several decades ahead on a regular basis. A monthly or yearly savings plan is one way to accomplish this. Financial planners usually recommend setting aside at least 10 percent of income for retirement — however, the U.S. savings rate is only 4 percent. Many individuals do not have any retirement accounts, and less than 20 percent of investors think that their money management activities will produce adequate income during retirement. One practical option to improve in this area is saving automatically at the beginning of the month through a withdrawal program rather than saving whatever is left over at the end of the month.

3. Misunderstanding Installment Debt : Credit cards make our life simpler by allowing convenient purchases, but the potential costs and complications are often overlooked until it is too late. While financial institutions make it easy to  get cash advances and make a small minimum monthly payment, the unpaid balance is subject to fees and interest that can exceed 20 percent. With credit card payments and other installment debt, paying off balances can take years. These financial obligations can make it more difficult to set aside money for retirement and other long-term financial needs. One solution for avoiding this money management mistake is to use debit cards that restrict amounts spent to cash in account rather than a credit line.

4. Spending Too Much on Housing : How much we decide to spend on housing and other monthly expenses can have a long-term impact on our money management success. A mortgage typically involves a financial commitment that can last 25 years or more. If our mortgage payment takes up too much of your paycheck, we might end up using our credit cards to meet emergency needs and cover other living expenses. Even though renting avoids the long-term commitment of a mortgage, excessive payments for a lease can have a similar negative impact on what w have left for your other financial needs. One solution is to create a realistic budget to define what we are willing to spend for retirement, emergency spending reserve, housing, food, entertainment, education and whatever else has a high priority in our life.