Despite the fact that the financial industry has experienced several changes over the centuries, there are still three mistakes that one should bear in mind to always avoid.
Humans are creature of habit. Some habits are good and some are bad. For money, most of us do not take the time to form good habits. Instead, we often repeat poor behaviors, causing most people to struggle financially. Followings are three never-obsolete mistakes with money that people still make, as well as how to avoid and correct them, according to Forbes.
1. Disregard the power of time
Most people do not understand how important time is when investing money. Every investment you make will make a profit after a certain amount of time. Unfortunately, most people especially inexperienced investors, however, are impatient and want to see immediate results. If they don't, they will panic and make impulsive decisions. This can probably cause them a huge loss a lot of money in the long run.
2.Not take advantage of compound interest
One of the biggest financial mistakes that people often make is not taking the time to properly understand and know how to take advantage of compound interest. An easy-to-understand example of this habit is that most people (especially young people) always mistakenly think that investing small amounts of money will never bring in profit and it would be a waste of time to do so, therefore, they simply spend what they have. The truth is that if you know how to use your most valuable assets, which is time, and get a decent amount of money and invest regularly, even though the amount is small, you can still earn significantly good profits.
Investor, billionaire, Mark Cuban says that you will get 18% interest if you pay off your credit card balance. This really makes sense because credit card companies are leveraging the power of compound interest. They receive a very large (or larger) 18% refund on any outstanding balance. Year after year, compound interest may result in a huge number that hardly anyone could imagine.
3. Not know how to choose the appropriate insurance
Last but not least, another common mistake people make is not understanding what type of life insurance they should buy. Most people buy insurance to protect themselves against potential losses but try to buy insurance with as small amount of money as possible.
However, for life insurance, there are more and more types that confuse buyers. Cash payment insurance is now offered by companies such as Whole Life, Universal Life, which have a common feature of accumulating a certain cash value and the amount of payment specified in the policy. This is a big mistake because accumulating cash value is useless, and in most cases, the insurer will keep that money when you die.
If you are looking for basic life insurance to prevent early accidents, you may want to consider term insurance. This will save you a lot of money and if you cut your contract, you can still use your savings to invest in other fields, which will help you earn more money. So, where should cash insurance be applied? The answer is insurance for real estate type is an extremely suitable alternative.
People make all kinds of mistakes with money and no one is perfect. There is nothing bad about making a mistake, but it would be deplorable not to learn from it and repeat it over and over again. Above are just the 3 most common financial mistakes. It is important that you take the time to learn smart financial thinking and learn to develop positive habits to build a strong personal wealth foundation.