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6 Money Traps to Avoid
6 Money Traps to Avoid
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Money Management

6 Money Traps to Avoid

Money254
Ian Job
March 21, 2022

Each year we find ourselves falling into the same money traps. We overspend on things we don't need, have trouble sticking to a budget, and fail to make intelligent decisions, which may often lead to mistakes that cost us money. These money traps can be frustrating and costly if we don't know how to avoid them. Here are some of the most common money traps people fall into and how to avoid them.

1. Investing in High-Risk Stocks as a Newbie

It's all about crypto and NFTs right now. People who make life-changing amounts of money quit their jobs and live the life of their dreams are featured in some new article every day.

Contrary to popular belief, this is not the case. Investing in crypto and NFTs is a high-risk endeavor. The analogy here is that you're signing up to drive an L-plater sports vehicle as an amateur investor.

In the absence of a rainy-day fund, a credit card debt, a lack of savings, a lack of financial literacy on investing, or the inability to live paycheck to paycheck, there is no need to start with cryptography or non-fungible tokens.

Only invest when you are strong and stable financially (not desperation or struggle). A solid financial foundation allows you to take more risks in your investments without fear of losing everything.

Begin from where you are now (not where you wish to be) and take small steps.

2. Considering Yourself Successful if You Earn and Save Well

Getting a promising career, putting money away, and buying a house are the three pillars of most people's financial plans. But there's more to it than that.

The million-shilling question you need to answer is this; Is it possible to live off your savings and assets for an extended period if your job were to be eliminated?

It's easy to see that the vast majority of people would prefer the freedom from having to work for a living in the future.

Your financial condition is a significant factor in determining whether you can make that choice. What would you do if you’re unable to earn a living because of a lack of employment opportunities?

For the vast majority of people, their assets will be the answer. Stopping or reducing the amount of labor you have to do will be possible by your investments.

To this end, NSSF was implemented in Kenya as a form of "forced" investing to ensure that retirees could live comfortably on the money they had saved.

But the NSSF pension scheme is not enough to retire on, and you may choose to quit working before the legislation lets you access your NSSF account.

As a result, it's essential to grow your investments outside of the NSSF.

So, if you're content with your current income and savings, that's fantastic.

There is much to do. Study how to invest in expanding your portfolio and having more freedom and flexibility.

3. Thinking That It's Early in the Year, so You Have Plenty of Time

We devote the first quarter of the year believing that we have a lot of time on our hands. Later in the year, we spend the rest of the year wondering how much time we have wasted.

Despite popular belief, your goals will not become any easier to achieve as the year goes by. Acquiring debt-free status, boosting your savings, and beginning to invest will be exactly as complex as now.

It frequently becomes more complex as time passes.

Life happens, things get hectic at work, and unexpected situations occur. There is a never-ending stream of arguments we may use to justify our actions and convince ourselves that now is "not the proper time."

What if you could achieve your objectives even earlier than you had anticipated? What if you completed your goals by July this year, rather than waiting until the end of the year?

Rather than feeling the burden of guilt for not starting sooner or doing more, you'd have the remainder of the year to enjoy yourself instead of wallowing in self-pity.

4. Subscription Scams

Okay, we've previously stated how often we make a good bargain. What we don't appreciate, though, are dodgy businesses that attempt to exploit you. And that is precisely what certain subscription businesses do. Here's how to identify the difference between a legitimate company and a phony one.

It is not a good sign if a company offers a free trial period but does not disclose how much the service will cost after that term. Take a look around the website. If they're concealing or omitting this crucial data, get out immediately!

If canceling the trial is complex and there are no individuals accessible to speak with, there is nothing to be done. Also, if they try to trick you into paying by claiming that you'll forget the time and day your free trial ends, that isn't fair to you.

Taking advantage of a free trial might be an excellent opportunity to try out a platform- one you're interested in. Just be aware of the costs that you will incur in the future and the cancellation policies. Just in case, you know.

5. Car Leases

We have all been in that situation. You're cruising about in your ancient Honda, doing your own thing, when your friend pulls up in a new BMW with high-end speakers and tuned seats and starts talking to you about life. Fancy.

That beamer appears to be a lot more appealing than your beater.

Your thoughts begin to stray from the present. Wouldn't it be fantastic if you could turn in the Honda for a good car—something along those lines? What does it matter if you don't have the money to pay for it now? You're confident that you can comfortably afford leasing payments. Wrong.

Take it or leave it, a luxurious automobile is excellent—however, only if one can pay for it in cash. Leasing a car is perhaps the most costly method of transportation. So don't go there in the first place.

6. Living Without a Financial Plan

Many people will assure you that they desire to be wealthy one day. Who doesn't want that? They are confident that they will be rich in the future, but they have no answer when asked how they intend to achieve this.

In regards to creating and conserving money, simply hoping for the best does not suffice. It must be a well-thought-out and actionable strategy.

You won't be able to make it without a strategy. Without establishing and adhering to a financial plan. For you or your spouse to monitor your achievement and stay dedicated to your goal, you'll need to regularly schedule financial accountability sessions with yourself or your financial advisor.

Conclusion

Stay on track with your resolutions and take a thorough look at your money in 2022, or you'll find yourself back in this same position the following calendar year. Consumer confidence is still unstable, although economies are gradually improving. As a result, you should exercise caution while spending money. 

Avoid falling into the same financial traps again and learn to control your bad spending habits, which could cause you to lose all of your savings.

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