Most Common Financial Mistakes by Breadwinners: Here are Some Quick Fixes
Many Filipino breadwinners face challenges when it comes to managing their finances, which can have a significant impact on their overall financial well-being. From overspending to neglecting retirement savings, these bad financial habits can hinder individuals and their families from achieving their long-term financial goals. It is crucial for these individuals to recognize and address these habits in order to secure a stable financial future for themselves and their families.
In this article, we will explore some of the most common financial mistakes of breadwinners and offer potential solutions to help them improve their financial health.
Living Beyond Their Means
One common financial habit among breadwinners is living beyond their means, which means spending more than they earn. This often happens when individuals do not have a budget in place to track their spending. For instance, one might consistently eat out at expensive restaurants or buy luxury items that exceed their current income.
To address this habit, individuals should create a realistic budget that shows their monthly income and expenses. By tracking their spending and identifying areas where they can cut back, individuals can begin to live within their means and avoid accumulating unnecessary debt. Breadwinners can start by tracking their monthly income and listing all their expenses, including rent or mortgage, utilities, groceries, transportation, and entertainment. By comparing their income to their expenses, they can identify areas where they are overspending and make adjustments accordingly.
Additionally, breadwinners can prioritize their spending by distinguishing needs and wants. For instance, they may need to pay for basic necessities like housing and groceries, while luxury items such as designer clothing or expensive gadgets may be considered wants. By prioritizing needs over wants, individuals can allocate their resources more effectively and avoid overspending.
One can consider alternative ways to reduce expenses, such as cooking at home instead of dining out, taking a bus instead of bringing a car to work or preparing coffee at home instead of buying Starbucks coffee. Making small changes in these areas can add up to significant savings over time.
Failing to Save for Emergencies
Many individuals often overlook the importance of saving for unexpected expenses, such as medical bills or car repairs. Without an emergency fund in place, people may find themselves in a tough financial situation when these unexpected costs happen. For example, if someone's in need of medical care and they don't have enough savings to cover the medical costs, they may be forced to rely on high-interest credit cards or loans to pay for the expenses. This can lead to further financial strain as they struggle to repay the borrowed money along with the added interest.
To address this issue, people should make it a priority to build an emergency fund that can cover three to six months' worth of monthly expenses. For example, if someone's monthly expense is Php 100,000, they should aim to save between Php 300,000 to Php 600,000 in their emergency fund.
In order to achieve a sufficient emergency fund, one must build on the discipline of setting aside a portion of their paycheck immediately and putting it in a savings account that mainly acts as an emergency fund. For instance, if a person earns Php100,000 per month, Php20,000 must be set aside and must be transferred directly into their emergency fund account. As a rule of thumb, it is recommended to set aside 20% of your monthly salary to your savings.
Should you be interested in learning more on how to set-up an emergency fund, click here to watch our YouTube video and learn everything you need to know about creating an emergency fund.
Not Contributing to Retirement Accounts
Failing to contribute to retirement accounts, such as government pensions and Individual Retirement Accounts (IRAs), is a common financial mistake that many individuals have. This happens when individuals prioritize spending their money on immediate needs and wants rather than saving for their long-term future, which can lead to a lack of funds for retirement.
A helpful solution to this problem is to set up automatic contributions to your retirement accounts. By doing this, a portion of your salary can be automatically deposited into your retirement savings, ensuring consistent and regular contributions over time. This approach can help individuals build their retirement savings without having to actively think about it or remember to make manual contributions.
In Rampver Financials, we have this service called “Micro-investment Program (MIP)” designed to help employees build on their own investment portfolio which they can make use of as their retirement fund in the future. This feature works by automatically deducting a portion of their salary that is to be invested in investment instruments of the employee’s choice. The amount to be deducted and invested will be decided by the employee as well.
The main goal of the MIP is to help employees prepare for their retirement in the future by investing in high-yielding investment instruments in a convenient way. To know more about this, just click here and a Rampver representative will get in touch with you.
Ignoring High-Interest Debt
Some breadwinners may sometimes find themselves in the habit of neglecting high-interest debt, such as credit card balances or personal loans. This can happen when individuals make only the minimum payments, leading to a situation where they end up paying a significant amount more in interest over time. As a result, they may struggle to make any real progress towards paying off their debt.
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To address this issue, individuals should consider creating a budget that allows for more than just the minimum payments on high-interest debt. They can also explore options such as debt consolidation or balance transfers to lower their interest rates and make it easier to pay off their debt.
Additionally, seeking financial counseling or education on managing debt can provide employees with the necessary tools and knowledge needed to tackle their high-interest debt effectively.
If you’d like to learn more, watch our YouTube video and learn the 5 simple rules on how you can eliminate debt by clicking here.
Impulse Spending on Non-Essential Items
Impulse spending is a common problem that many people face when it comes to managing their finances. It involves making spontaneous and unplanned purchases on non-essential items, often driven by emotions and external influences.
Examples of these would be buying a new designer handbag because it's on sale, or upgrading to the latest smartphone simply because it's the newest model on the market. These impulsive purchases can quickly add up and have a significant impact on an individual's overall financial well-being.
To address this problem, individuals must implement strategies to avoid impulse spending. One effective approach is to create a budget and stick to it, allocating specific amounts for essential and non-essential purchases. Taking the time to pause and reflect before making a purchase can also help individuals evaluate whether it is a necessity or simply a desire.
Not investing for their future: “When you invest, you are buying a day that you don’t have to work.”
One of the most common financial mistakes that some individuals make is not investing for their future. Investing is important because it allows you to save money now so you don't have to work as hard later in life.?
Think of investing as buying yourself a day off in the future. When you invest, you put your money into high-yielding investment instruments like stocks, bonds, mutual funds and real estate investment trusts (REITS) that can grow in value over time. This growth helps you build wealth and financial security for you and your loved ones.
By not investing, you might find yourself working longer and harder than necessary, even as you get older. That is why it is important to start investing as early as possible, so your money has more time to grow on its own.
The good news is we can help you get started! For as low as ?1,000, you can participate in the earnings potential of the largest companies in the Philippines such as SM, Globe, Ayala Land, Meralco, BPI, BDO, Jollibee, and many more!?
You can sign up and start investing at the convenience of your laptop or smartphone through Rampver Online! Click here to open an account and start investing!
Conclusion
It is very important for employees, especially those who are breadwinners in the family, to address and overcome bad financial habits by taking specific steps such as creating a realistic budget to effectively manage expenses, prioritizing savings to build a financial safety net, and contributing to retirement accounts for long-term financial security. Additionally, managing high-interest debt and avoiding impulse spending are crucial for improving overall financial health. Enhancing one’s financial literacy is key to making informed decisions and achieving financial goals. By recognizing these common financial mistakes and implementing these effective solutions, breadwinners and their families can be more financially stable and secure.
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