Whether we like it or not, money matters! Our finances can dictate a large part of our lives. It’s important to get to grips with your finances and have a good understanding of money management. Money mistakes are very, very easy to make. Below, we take a look at some of the worst monetary mistakes anyone can make, so that you can take the steps to avoid making them.
- Overspending – There is only one place to begin, and this with overspending! This is one of the biggest mistakes that most people make when it comes to money. It is very easy to live beyond your means. After all, you spend the money you have available to you at that moment, and you neglect to consider the future. This is a very easy trap to fall into. So, how can you determine whether you are overspending? It’s very easy! You simply need to discover whether your outflow exceeds your income. The first step to accumulating wealth is spending less than you make. If you overspend, you are doing the worst possible damage to your monetary situation.
- Buying a home without calculating the true cost – When buying your first home, it is so important to budget correctly. You need to consider all of the costs you are going to be subject to, rather than simply considering the cost of the loan and the deposit. You are also going to have stamp duty to pay, as well as legal fees and maintenance costs. One of the worst things you can do is leave yourself short. There is no harm in buying a property a year later to ensure you have all of the costs covered.
- Taking out a loan that you cannot afford to repay – There is no harm in taking out a loan, so long as you pay it back on time. If you are in desperate need for some extra cash, it can be very tempting to take out a loan without any consideration for the repayment terms. You simply tell yourself you will get the money needed to pay it back, especially if the lender has offered you a holiday period, i.e. a few months before you need to start paying the loan back. However, when the repayment period comes about, they can’t afford to make the payments. This will put you in an even worse position than you were to begin with. Every missed payment features on your credit report for six months. Lenders will not want to lend you any money if they see that you have not paid back another lender. This bad reputation is something you will carry with you for many years, so make sure you never take out a loan unless you can guarantee that you can make the repayments.
- Waiting too long to start saving for your retirement – A lot of people do not save for their retirement until it is too late. This is understandable. After all, it can be very difficult to comprehend saving for 40 years or so into the future when you have more pressing financial concerns right now. Nonetheless, the sooner you start saving, the easier it will be. Putting away small amounts every year from your 20’s can set you up perfectly for your retirement.
- Living paycheck to paycheck – Of course, living paycheck to paycheck is not a choice for some people. But, research shows that a lot of households do not save as much as they should. It is important to have an emergency fund in place should an unexpected expense come about. And, let’s face it, there are going to be some unexpected costs that will come about throughout your lifetime. Plus, you never know what is going to happen to the economy! A lot of people lost their job during the worldwide recession, and so it is important to be prepared. Save some money whenever you can.
- Spending too much on your house – Bigger is not necessarily better when it comes to buying a house. Unless you have a big family, you don’t need to buy a six-bedroom property. Not only will your home cost more money to begin with, but also it will mean more expensive utilities, maintenance, and expensive taxes.
- Buying a new car – Every year, millions and millions of new cars are bought. Nevertheless, most of the people that buy these cars cannot afford to pay for them in cash. If this applies to you, it indicates that you cannot afford to buy the car full stop. Just because you can afford the first payment does not mean you can afford the vehicle. A lot of people will take out a loan to buy the said car, but this means you are paying interest on a depreciating asset, which means you are paying way more than what the vehicle is worth. Instead, consider all of your options, why don’t you buy a used vehicle instead? Or, if you really do need to take out a loan, avoid choosing a car that is more expensive than what you need!
- Living on borrowed money – It has become somewhat of the norm to live on borrowed money. A lot of people buy essentials with their credit cards. Avoid doing this. You are going to end up paying way more for everyday items because of interest.
- Making never-ending payments – Do you have countless subscription fees that are coming out of your bank account on a monthly basis, year-after-year? Your video game subscription may not seem expensive because you are only paying a small amount for it every month. However, this money quickly adds up, and you will be surprised by how much you are paying in total once you add all of the monthly payments up. Take a look at your ongoing payments at present. Do you really need a subscription for everything from your mobile phone to a certain radio channel? When money is tight, this is one area where you can definitely make some savings.
- Not having a game plan for getting out of debt – If you are currently in debt while you are reading this, please don’t feel like it is in the end of the world. Everyone can get out of debt, and there are some really inspirational stories online that will give you the push you need to get out of your predicament. Nevertheless, if you are to get out of debt – no matter how much or how little you owe – you need to have a game plan. You can’t simply state you are going to pay whatever you can each month. These kinds of rationalisations make it incredibly difficult to pay off debt. Instead, you need to put together a well-thought out plan, working out your incomings and outgoings, as well as dedicating an amount of money to paying off debts every month. Some of the key steps to getting out of debt include making sure you do not spend more than what you earn, deciding how much you can realistically put towards debt payments every month and sticking to it, and figuring out a deadline for being debt-free.
- Waiting to invest – There are three factors that will determine how well your savings and investments perform. This includes the return rate on your investments, the amount you have invested, and the length of time they are invested. Quite simply, the sooner you invest, the more you can expect to make.
- Not having a will – Having a will is critical, especially if you have minor children. Do you really want the government to decide what to do with your kids?
- Not understanding the importance of your credit report – If you do not know much about your credit score now is a good time to start learning. The last thing you want to do is cause long-term damage to your credit score because you were doing something bad without realising it. For example, did you know that the amount of credit applications you make could have an impact on your score? Get to grips with what does and does not impact your overall rating so that you can make the effort to boost your score.
- Not having a budget – Last but not least, no matter how much money you make, it is so important to have a budget. If you want to gain control of your money, you need to know exactly where it is, and how you are going to spend it. Your budget needs to work for you. There are many different budget plans online that you can follow. One of the easiest budgets to follow is the 50/20/30 rule. This means that you attribute 30 per cent to lifestyle choices, 20 per cent to financial priorities, and 50 per cent to essential expenses.
So there you have it; some of the worst money mistakes you can make, which are undoubtedly rather easy to make! Avoid the errors that have been mentioned above and you will be well on your way to a financially sound future.