January 26, 2021 6 min read
Opinions expressed by Entrepreneur contributors are their own.
It’s a new year, and for many people, it’s a time of new beginnings. Over 70 percent of Americans resolve to be smarter with money. Money is essential, and if you want to succeed with your money goals, you have to unlearn things.
Because whether you see it or not, those mistakes are hurting your chances of reaching your goals. So, here are five financial mistakes to avoid in 2021.
Not considering maintenance costs
Everything you buy comes with a cost of maintenance. The marketers selling the product won’t tell you that outrightly, but you’ll find out when it’s time to pay. For example, that new car you’re looking to buy will need fueling, servicing, new tires, etc. The new house comes with taxes and maintenance costs as well.
Related: The Top 9 Books Recommended by Millionaires
These bills creep up and can take a toll on your expenses if you’re not careful. This is why budgeting is important. For every new purchase you make, you have to make a budget for the cost of maintenance. When you can factor in ongoing costs monthly, you won’t have to keep harming your purse to take care of the bills. These costs can affect you as a business or an individual, so you should pay attention to them.
Not learning about taxes
You must have heard the saying by now that the only things certain in life are death and taxes, right? No matter what you do, taxes will always come, but what you can do on your path is to learn how to do your taxes to pay less. This is necessary because if you don’t, you’ll be giving Uncle Sam money that could have been saved, invested, or used to go on that amazing vacation.
There’s a common misconception people have about doing their taxes- how difficult it is. But there are many ways to go around this to simplify the process for you. Some quick tax-saving tips include: Deduct your home office, car expenses, hire family members to work for you, and take advantage of the penalty relief program.
Just as John Maynard Keynes has said, “The avoidance of taxes is the only intellectual pursuit that carries any reward.” Learn the basics, and you’ll be paying Uncle Sam less money come tax season.
It’s a common excuse people give that they’ll invest when they’re rich, but this is wrong on many levels. You should start investing as soon as possible because that’s how you gain financial freedom. Robert Kiyosaki, the rich and poor’s philosophy is this: the rich invest their money and spend what is left. The poor spend their money and invest what is left.”
Your journey towards financial freedom starts when you make investing a must. So, getting into a better financial position in 2021 involves keeping your money aside and growing it.
Leaving money in your savings account is as good as wasting your money. Because when inflation comes, your money will lose its value, but let’s say you invest in dividend-paying stocks or real estate, you’ll see your money increase in value and, of course, enjoy that passive income that brings you closer to financial freedom. Plus the interest rates from banks are not very high.
Related: Learn the Personal Finance Habits of Wealthy Entrepreneurs
Investing takes patience and proper research. Whatever you put your money in, you should learn all you can about it: the industry, the big players, the loopholes, everything. This will give you confidence in making proper decisions.
Using your emergency fund for the wrong reasons
Your emergency fund is money set aside for unforeseen situations such as job loss, unexpected bills, gadget repairs, or loss, etc. It is a common rule to have at least 3-6 months’ worth of living expenses as your emergency fund in your savings account.
It can be tempting to use this money to get that new gadget, go on a vacation, etc., these are not unforeseen situations by any stretch. When the real unexpected problems happen, you’d be forced to go into debt to settle the bill, which is always a bad thing.
So how do you build an emergency fund? You can easily set aside a savings account strictly for emergencies. Put 10% of your salary monthly income into it. This amount might look small at first, but as it compounds, it will all be worth it, and you’ll have a sufficient income to fall back on.
And as Washington Post personal finance columnist Michelle Singletary put it, “I’m making an appeal, written in my daughter’s hospital room, to those who can — and you know who you are — to save for certain life emergencies.” But don’t worry yourself sick at the slow growth. The point is that it’s growing even if it’s just one dollar at a time.
Not prioritizing your health
The sooner you begin to see your health as an investment, the better for you. Whether physical, mental, or emotional, your well-being will keep giving you positive returns when you prioritize it.
Medical bills are not cheap. If you neglect your health today, you’d have to pay those exorbitant fees that can create a hole in your pocket in the future. You have to do your due diligence today to ensure that you prioritize your health. This includes exercising at least three times weekly, meditating, and staying away from people and relationships that are not good for you.
2021 just started, and everyone wants it to be their best year yet in all areas. But becoming financially free requires discipline. And no matter how much self-help content you consume, if you’re not disciplined, you won’t achieve anything worthwhile, and the new year will be like the other years for you.