Learn about the most common financial blind spots and how to overcome them.
Drivers are always told to be aware of their blind spots or the places where they cannot see their surroundings well. When you make a turn, change lanes, or just as you’re driving, it’s important to keep those blind spots in mind to ensure the safety of yourself and everyone around you, find state of Michigan tax refund.
Would you believe that there are blind spots in finances, too? In the case of finances, though, your blind spots may not be at the top of your mind. But, your financial blind spots can hold you back from financial success if you aren’t mindful of them. Let’s talk about some of the most common ones and what you can do to identify yours.
6 Common Financial Blind Spots That Hold People Back
Hidden in plain sight, these blind spots could be a big issue for your financial health.
Just like a blind spot in a car, your financial blind spots are difficult to see if you aren’t looking for them. Almost everyone has some type of financial blind spot that ultimately holds them back. But they can also work to become more aware of them and work to minimize them in the future.
1. You Keep Putting off Investing
There’s an incorrect assumption that investing is only for the rich. If this is your mindset, you need to change it!
For those who have never invested their money before, it can be intimidating to know where to start. Many people are starting to realize the value of investing, but a lack of knowledge on how to invest their money holds them back.
It’s best to invest your money as soon as possible for the best results possible. Even if it’s just $100 a month, this is a great place to start.
When it comes to investing, time will be your best friend. Markets will always go up and down, and while that may feel a bit daunting, timing in the market matters much more than timing the market. The longer you keep your money in your investments, the better your return will likely be. You will also likely make more from investing than you can from a regular savings account.
Investing may seem like a risk that you don’t want to take, but that’s far from the truth. Do some research into investing finest practices and start dipping your toes in the water. As you learn more and gradually start seeing the results, you will become much more confident in your ability to successfully invest your money.
2. You Overuse Your Credit Card for Rewards
Credit cards are somehow both a blessing and a curse. If you use credit cards correctly, you can unlock so many benefits, but If you misuse your credit cards, you can get yourself into a bit of financial trouble.
Nowadays, lots of credit card companies offer rewards as incentives for using their card. Some companies offer cash back, points towards a future purchase, or even travel perks. While it may be tempting to use your credit card for everything so you can unlock these rewards, this could end up costing you way more in the long run.
Of course, you should try to use credit cards to your advantage, so your goal should always be to pay off your credit card before overusing it to cash in on your rewards. Depending on your interest rate, it may be way more expensive to carry a balance on your credit card than you’re actually getting in rewards. While the perks are nice, your first priority should always be to avoid paying any interest on your credit card.
3. You Aren’t Prepared for the Unexpected
While you can’t completely plan for the unexpected, you can do your best to stay prepared in the event of an emergency—no matter the emergency. Both an emergency fund and life insurance are the two major financial elements that can help you feel a bit more prepared.
An emergency fund is intended to have some money saved away that you and your family only touch under certain circumstances (A.K.A. emergencies). Having an emergency fund in place can give you peace of mind, knowing if anything were to happen, your family would have some financial security in your back pocket.
As a general rule of thumb, you want to have anywhere between 3-6 months of your monthly living expenses saved up in your emergency fund. You should consider keeping your emergency fund in a high-yield savings account so that you can make the most out of your money. Decide ahead of time what your family considers an emergency, and only touch that emergency fund when absolutely necessary.
While most people understand the necessity of emergency funds, they often overlook the value of a life insurance policy on top of that. But should that really be the case?
Life insurance policies are designed to financially support families in times of loss. If you were to pass away and you had an active life insurance policy, your beneficiaries would receive a death benefit. That could then be used to help cover funeral expenses, pay off large debts, or even just cover day-to-day expenses.
So, why do so many people overlook life insurance? Well, many people assume that life insurance is completely out of reach for them, which couldn’t be further from the truth.
Many life insurance companies offer very affordable term life insurance policies with coverage amount options that most families would need. Depending on the company, you can often apply right online and get approved for a policy within minutes. With a life insurance policy in place, you can start worrying less about the unexpected.
4. You Get a Large Tax Refund
Taxes are a pain to think about, and for many people, the tax refund they get is the best part. In actuality, though, it’s best to get the lowest refund possible from your taxes.
When you fill out your tax documents at work, you likely have to choose how your taxes are withheld from your paycheck. More often than not, people choose to withhold more money than they need. In this instance, you have less available money year-round while the government holds onto your money until tax time. If you’ve overpaid your taxes, you get that money back.
Money is much more valuable in the present than it is when it’s paid out as a tax return. When you have more money readily available in the moment, you can put that towards investments or into savings accounts where it can grow. If you typically receive a large tax return, it may be time to look into your withholding preferences at your job.
5. You Don’t Realize How Much Small Purchases Actually Add Up
There’s no question that little purchases add up quickly over time. A few years back, cutting the chords to cable and switching to streaming services was the it thing. Now, you may have 3-5 streaming services on top of all the other subscriptions you may have. And that doesn’t even include all of the other small, one-off purchases that add up, too.
At the moment, something as simple as $10 per month for a subscription may not seem like a big deal. But, as those subscriptions add up, you may find yourself spending hundreds of dollars a month on things your family may not really need.
Take a close look at your spending and figure out how many monthly subscriptions you have. Sit down with your family and decide whether or not you truly need these subscriptions or if it’s something you can do without. As you cut back on your subscriptions, you’ll free up a little bit more of your money to put toward what your family really needs.
6. You Compare Yourself to Others
We compare ourselves to others all the time, and we even do it from a financial standpoint. While social media isn’t the only culprit that makes this incredibly easy, much of it does stem from that.
People take to social media to post the good things about themselves and the exciting things happening in their lives. You may see your friends post about buying a new house, getting a new job, or taking an extravagant vacation. It’s no wonder that we all feel some type of pressure to be doing better—especially financially.
In an ideal world, you’d be able to buy that new house, get that better job, and take that fancy vacation, too. But, of course, that’s not always the case.
When you find yourself comparing yourself to others financially, remember that everyone comes from a different financial background and may have different goals in mind. What may be important for you may not be as important to other people. There’s no competition or race to reach your financial goals. Be patient and consistent, and always remember to follow your own goals. Everything will fall into place eventually.
How To Identify Your Financial Blind Spots
Reflect on your spending habits and work to overcome your financial blind spots.
These financial blind spots likely aren’t the only ones you have. One of the biggest challenges with financial blind spots is that they’re honestly pretty difficult to find if you aren’t paying attention.
When it comes down to it, there are 3 things that you can do to better identify your financial blind spots:
- Keep a watchful eye on your expenses. Expense tracking is a great way to take a closer look at your spending habits and see where you might be spending too much. A deep dive into your expenses can help you start to identify your unique financial blind spots.
- Set realistic and attainable goals for yourself. Everyone should have financial goals, but not everyone has realistic financial goals. Make a list of all of the goals you want to achieve financially and prioritize them to your preference. Make sure your goals are at the top of your mind when you think about your finances.
- Create a budget that actually works for you. Your budget should not only help you keep up with your day-to-day expenses, but it should also help you create a roadmap for achieving your financial goals. Make sure that your budget doesn’t confine you too much but is also strict enough for you to accomplish what you want financially.
While these steps seem easy enough, everything is always much more difficult in practice. Revisit these steps from time to time to make sure that you are on the right track financially and can identify and squash any bad financial habits that may hold you back from accomplishing your financial goals.
Just like how blind spots in a car can put you in danger, financial blind spots can put your finances at risk, too. But, just like blind spots in a car, you can stay mindful of your financial blind spots and start minimizing the risk.
