Not managing your money well could cause you a lot of anxiety and financial hardship. Staying on top of your finances is even more crucial if you’re a low-income earner, since you don’t have a lot of wiggle room for your spending. Here are the top money mistakes made by low-income earners:
Living Paycheck to Paycheck
Are you on the constant loop of waiting for the next paycheck to survive? This habit can cause a lot of anxiety and worry. In order to change that, you have to live below your means. For example, if you earn $2000 per month, try to live as if you earned $1500. It is crucial that you save at least a bit of your income, even if you don’t earn a lot of money. You can also get a second job to help pay the bills, or even sell stuff you’re not using to get a bit of extra cash.
Not Having a Budget
The vast majority of people spend their money without ever thinking about where it’s going. Having a budget can be defined as planning where your money is going to be spent or saved. Everyone should have a budget, but that’s even more important to low-income earners. There are some budgeting methods you can choose from, such as 50/30/20, or the envelope system.
Not Building an Emergency Fund
Everyone can be subject to an emergency expense. The difference is that you can try to prepare for the unexpected, such as job loss, house or car repairs, or even medical bills. Not having an emergency fund can lead you to a lot of debt. Consider allocating some of your money to a low-risk investment such as a high-yield savings account, so that you’re more financially healthy.
Having High-Interest Debt
A good amount of low-income earners have already had to ask for a loan to cover an expense at least once in their lives. It’s always best to avoid getting in consumer debt, but if you can’t find any other way to get more money, it’s essential to shop around to find the best interest you can get. Since they come with compound interest, they can snowball and get out of your control. If you’re already in debt, it’s always best to focus on paying the highest-interest debts first.
Do you buy things just for the sake of buying and don’t even use them later? Spending money carelessly can lead you to financial ruin. It’s crucial to understand why you spend the most part of your money on things you don’t need. What are your triggers? Is it anxiety? Boredom? When you notice you feel like shopping, try and understand how you’re feeling at that moment and try to shift your focus to something else. Another trick is telling yourself you’ll come back tomorrow. More often than not, your will to buy would disappear.
Creating Unrealistic Goals
The majority of people end up creating unrealistic money goals and end up doing nothing to achieve them. You need to have a plan if you want to succeed financially. Not like “when I earn a lot of money I will live the life of my dreams”, but instead, you can start small and create an objective of saving 1,000 dollars for your emergency fund, and for that, you’ll put aside 50 dollars every week. As you start seeing results, you’ll get more motivated to do other things to achieve your goals in life.