A budget provides a clear story of a household's income. It's a vital tool to establish financial independence. Yet, while it's a straightforward task, especially with the apps available, many people abandon budgeting. They think they need more money to maintain it. They feel guilty seeing evidence of their overspending. Or they become impatient with the lack of progress.
How to avoid this blind spot: Before jumping into budgeting, analyze your finances. Check your average expenses for the last three months and evaluate where your money goes. Understanding your necessary expenses (like bills) and optional expenses (like shopping or entertainment) gives you a more realistic picture of your finances, allowing you to make better decisions.
Waiting to earn more before saving
Many people understand the importance of consistently saving whatever they can. But some often overlook it because they believe they must earn more to save. This belief is often linked to their feelings about money, which they may have experienced growing up.
For example, monitoring their bank balance or spending habits can make them feel guilty, fearful, or ashamed. They may also feel inadequate when comparing their situations with family or friends in better financial circumstances. As a result, they tend to avoid situations that trigger those emotions.
How to avoid this blind spot: When you find yourself thinking negatively about your ability to save money, it can be helpful to take a moment to pause and acknowledge those thoughts. Try writing down financial and emotional obstacles to visualize them better. Then, take action by setting specific goals to overcome each barrier.
Delaying retirement planning
Coping with daily life's financial challenges is often the most pressing task for someone in their 20s or 30s. There's a healthy drive to address them first because they bring immediate results, while retirement feels a long way off. So, it's easy to lose sight of the necessity of retirement planning.
Preparing for the future requires delayed gratification—resisting the impulse to pursue short-term rewards for a bigger payoff in the future. That long wait, though, can distract focus or challenge your motivation to stay committed to your plan.
Putting your 10% salary increase into your retirement fund can mean saving money for less time than anticipated. But that amount can also increase your "wants" bucket, giving you more budget for shopping, movies, or eating out. So, it's a matter of balancing and deciding which is a financial priority.
How to avoid this blind spot: Break down your plan into smaller goals with a target date for each micro-goal. This approach makes your goals feel less intimidating and allows you to monitor your progress. It's also a reminder that you don't have to accomplish everything right now and can set short-term and long-term priorities.
Overlooking plans for the unexpected
It may be tempting to dip into your emergency fund at times. But when a genuine emergency arises, such as a loved one getting sick or injured, the fund may not be substantial enough to cover unexpected expenses. So, it’s essential to use emergency savings only for true crises.
How to avoid this blind spot: The temptation to use emergency savings can repeatedly occur when you're unclear about the definition of "emergency." Set your guidelines on what qualifies as one and stay consistent. Medical emergencies can drain your funds, so you may also want to use health insurance as another backup.
AIA All-In-One provides a cash benefit if you're diagnosed with any of the 10 covered major critical illnesses or you become totally or permanently disabled before you're 65. Your beneficiaries will also receive cash support in case of accidental death.
Recognizing financial blind spots
Anyone can become better at handling money, especially when they realize how their behaviors might affect their financial choices. So, keep learning more about your feelings and biases to avoid clouding your judgment and leading to decisions not aligned with your long-term financial goals.
However, identifying financial blind spots can be difficult and tricky on your own. You can benefit from expert help like AIA Life Planners, who can help you understand why it has been challenging to get your budget on track, save for the future, or grow your money. Getting an outside perspective can be insightful and put you back on track on your journey to a healthy financial well-being.
