There is no doubt that financial literacy has enjoyed a great boost, thanks in no small part to the internet and the decentralization of information. However, there are some very basic financial mistakes that we continue to make even though most people know better. In this article, we'll look at these potentially damaging oversights and why we continue to make them.
1. No Emergency Fund
It is true that most emergencies can be smoothed over by paying with a credit card and paying it off later. However, the biggest danger that comes with being short on ready cash is being ruined by the loss of a job. If you don't have savings to cover two or three months - or even two or three weeks - you'll either have to find a job quickly or begin selling whatever you can.So why do we do it? One common reason that seems logical is that the money in the emergency fund is more efficiently used in paying down outstanding debts. This reduces the overall amount of money you'll pay in interest on your debts. It stands to reason that having fewer debts will allow you to pull that "credit" you've paid down if something should happen. However, if you've ever tried to get a loan when you've been unemployed or under-employed, you know the terms get worse and sometimes you'll be refused credit on any terms.
In short, there is no replacement for having a cash cushion rather than depending on the goodwill of banks. The 2008-2009 credit crises has driven home the fact that when people are hurting from economic factors, the banks are often hurting too - and thus reluctant to lend.
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