Avoid Common Money Mistakes by Becoming Financially Literate

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Anyone can make financial mistakes, but financially illiterate people will keep making them. The good news is that you do not need to repeat those mistakes if you learn how to manage your money better. It will also be less painful for your wallet.

Most common financial mistakes are made by people who need to learn more about good money management. The good news is that financial illiteracy can be removed rather quickly.

Here are some of the most common mistakes financially illiterate people make.

Not Saving Enough Money for Retirement

Many people today have no idea how much money they will need in retirement. To arrive at a number close to what you will need, you must start with a good idea of how long you might live after age 65. The average life expectancy in the United States, according to MacroTrends is 79.25 years for 2024.

Your life expectancy means that if you retire this year at 65, you must have enough income to meet your financial needs for about the next 15 years—on average. Annual inflation must also be accounted for each year, which increases costs by 3.3 percent per year.

Getting Social Security during retirement will not be enough to live on. If Congress does not act in the next few years, Social Security benefits will be cut by about 20 percent due to a shortage of funds by 2035—just 11 years from now.

Not Having an Emergency Fund

Having an emergency fund can help prevent you from going into further debt. When unexpected situations occur, such as your car breaking down, a medical bill, or unemployment, you would likely have to use a credit card or borrow the money if you are unprepared.

Either option means you have increased your debt and must pay interest. Depending on where you get the money from and how much you borrow it could keep you in debt for years. On the other hand, if you had an emergency fund equivalent to a minimum of three months’ worth of income, you would not need to borrow any money or use a credit card for small emergencies.

If you already have a lot of debt, you need to reduce it as soon as possible, but HackSpirit says that even a little bit saved can provide a small safety cushion. Aim to put away at least one month’s worth of expenses if it is all you can do now.

Having Too Much Debt

Debt has become a big problem in America. Many Americans show little restraint with credit cards. The average credit card debt is around $38,000. They probably have not calculated how much they pay in high interest each year—often enough to take a vacation.

Having a lot of debt is poor money management. Not only will it prevent you from getting a good loan or mortgage if you want one, but it is also hurting your credit score. People with a lot of debt, if they can get a loan, will find that it is for a smaller amount and will have higher interest than someone would get if they had a good credit score.

People with less than 20 percent debt in relation to their total amount of credit have the highest credit scores. Paying each of your bills on time and for at least the minimum amount will help you get a better credit score.

Not Having a Budget

It is nearly impossible to have good money management without having a budget in place. Having a budget is very different from following it.

Fidelity says that following a budget and adjusting it as needed lets you see what expenses you can reduce or eliminate, and it will help you put more into savings. Many good budgeting apps are available online. They can help you manage your money better.

Not Growing Your Money With Investments

One of the best applications of financial literacy is to put your money in places where it can grow faster. Although bank savings accounts will give you some interest, most still offer less than one percent. A few of them will give about five percent.

The best place to put your money for growth is in stocks, bonds, mutual funds, and exchange-traded funds (ETFs). These financial tools can grow your money much faster but avoid putting money into various accounts without doing some investigating first. Brokers charge different fees to invest your money.

The only way to make your money grow in worthwhile value is to put it somewhere that earns more than is lost through inflation. Investopedia says that the inflation rate as of April 2024 is 3.4 percent. Although it fluctuates and has done so violently during COVID-19, InflationData reveals that from 1913 to 2020, the average inflation rate has been 3.1 percent.

How to Improve Your Financial Literacy

If you realize that you do not have good control of your personal finances and desire to become financially literate, there are several ways to do it. There are plenty of books available, as well as online videos. Read several books and watch several videos because you will find that some offer contradictory advice. You can also talk to finance advisers.

If you want expert help with investments, some brokerages offer managed accounts. They make the decisions for you and put your money in the best-performing stocks and bonds, etc., where it will see the most growth. Some investment companies offer robo-advisors that can instruct you on how and when to invest or sell.

Remember that financial literacy is only of value if you apply what you learn in the best way. Learning more is only beneficial when you change how you handle your money now.

The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.