Spotting Your Financial Blindspots and How to Avoid Them

Updated: June 20, 2024

When you’re driving, there’s that area your mirrors can’t see. That’s your blindspot.

Similarly, in personal finance, a blindspot is an area where you might not be able to realize that you’re financially vulnerable. Alternatively, they could be opportunities you miss because they’re beyond your sight.

Below are common financial blindspots that you might have and quick tips on how to fix them so you can have full vision and better management of your finances.

1. Ignoring Small Expenses

We all tend to overlook small expenses like our daily coffee or impulse purchases, but these add up fast!

How to fix it:

  • Track your expenses: Use a notebook or a phone app to track your spending. It takes only seconds to note but gives you a clear picture of where your money goes.
  • Create a fund for fun: Allocate a specific amount for wants. Stick to it and enjoy guilt-free spending.

When you see where your money goes, you can make smarter choices. Remember that budgeting doesn’t mean you can’t have fun. You just need to know what you can and cannot afford.

2. Overestimating Future Income

We often assume we’ll earn more in the future and spend accordingly. This leads to debt and financial stress.

How to fix it:

  • Live below your means: Base your spending on your current income, not potential future earnings.
  • Save more when you earn more: Increase your savings rate every time you get a raise. Enjoy a bit, but save more.

By living within your means now, you build a solid financial foundation. Saving more when you earn more will help you grow wealth faster and be more prepared for the future.

3. Neglecting Emergency Funds

Many people think they don’t need an emergency fund. But unexpected expenses can derail your finances.

How to fix it:

  • Start small: Begin with a goal of P10,000 and gradually build it up to 3-6 months’ worth of expenses.
  • Automate your savings: Always save first. It would be better if you could set up automatic transfers to your emergency fund. Out of sight, out of mind.

Having an emergency fund gives you peace of mind and financial security. Your savings will, one day, save you.

4. Falling for Lifestyle Inflation

As income rises, so do spending habits. Shopping for the trendiest clothes and buying the latest gadgets could be financial disasters waiting to happen.

How to fix it:

  • Conscious spending: Prioritize what truly makes you happy and cut out the rest.
  • Invest in experiences: Spend on experiences rather than things. They bring more joy and fewer costs.

Being mindful of lifestyle inflation helps you focus on what matters most. Investing in simple but meaningful experiences, such as bonding with your family at home, enriches your life without straining your finances.

5. Not Planning for Retirement

Retirement seems far away, so we put off saving for it. Big mistake.

How to fix it:

  • Start today: The earlier you start, the more you benefit from compound interest. Even small amounts grow over time.
  • Learn cost-averaging: Peso cost averaging is a passive but effective long-term investing strategy.

Starting early and following a simple investing strategy ensures you’re prepared for the future. Time and compounding are your best friends here.

Final Words

By spotting and addressing these common financial blindspots, you can take control of your finances and build a more secure future.

Remember, it’s about making small, consistent changes and being mindful of your habits. Stay motivated and keep pushing forward.

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