When it comes to managing your personal finances, you're likely aware of the basics: don't spend more than you earn, make smart investments, and, most simply put, save your money. And it's fairly easy to find sound suggestions for how to do so, but some of the most valuable advice is actually what not to do to keep your finances in order for the future.
While it can be difficult to think far in advance when you're living paycheck to paycheck, there are a few approachable pointers to help you avoid the major pitfalls that can come your way—and ruin your financial plan (or even the loose one) you have in an instant. It's safe to say that these tips from Business Insider's recent article, written by the 52-year-old self-made millionaire behind ESI Money, are worth (we mean that literally) a thought when it comes to the right and wrong way to spend and save.
Below, find three of the main money mistakes to avoid, according to someone who has $3 million in the bank:
- Overspending on Your Home: While it's easy to justify spending on a house—after all, it's where you live—it's one of the most dangerous financial decisions you can make. Because it's so enticing to splurge on your daily dwellings, you can easily compromise your financial situation if you're stretching your budget without factoring in unforeseen expenses (which are bound to happen). The rule of thumb when it comes to buying a house as cited by the article: "If you're not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household's annual realized income."
- Avoiding an Emergency Fund: It can be extremely difficult to set money aside in an untouchable place when you can't really afford to. But unexpected financial issues are a frequent and reoccurring dilemma, whether you want to believe it or not. And when you're not prepared, you'll compromise more than just your savings, but your earnings as well. Don't allow yourself to build up debt by borrowing for an emergency expense; rather, expect the unexpected and protect yourself by creating an emergency fund as a line of defense. What constitutes an emergency fund? The article explains, "A good rule of thumb is to have six months' of living expenses saved up. In addition, be sure to keep your emergency fund in a safe place —you certainly want it to be there when you need it. Don't worry about earning a ton on it; no one ever became rich by making money off their emergency fund. Just make sure it's safe and accessible."
- Marrying the Wrong Person: Yes, this takes the romance out of it, but marrying the wrong person can be one of the biggest mistakes you can make when it comes to protecting your personal finances. The two main ways marriage comes into play? When marrying an extravagant spender and when getting a divorce. Both will cost you more than you can afford. The best way to ensure your marriage will not be a hazard to your financial position is by discussing and delegating financial decisions as a couple, instead of a solo effort.