Working in financial planning, I often see the same money mistakes being made. So, I’m sharing with you the 8 biggest mistakes made with money so you can avoid them. Learn from other people’s mistakes and don’t make the same ones. Do the opposite and you will get ahead financially.
Mistake #1 Inconsistent Income
If you chop and change your work or you are unemployed for regular periods of time then it’s very hard to be able to put a plan in place as to what to do with our income the amount you earn is not as important as the consistency that you earn it so make sure you have roughly the same amount of money coming in each year overall it’s fine to have different part-time jobs or casual jobs if that’s what you need to do but just make sure over the year it all kind of washes out in the end so year after year you have roughly the same amount of income coming in.
Mistake #2 Wasting Money
Do you know where your money goes? I mean really goes? Have you ever tracked your expenses for a month or two? Literally, write down every single cent that you spend? If you haven’t I strongly suggest you try this experiment. Grab a pen and paper grab a money app if easier. Personally, I love one called Monefy (get it here). It’s a great way to note every single cent you spend for a month and really see where your money goes. You might be surprised that some expenses creep in that perhaps you didn’t even realise are costing you and it can be a great eye-opener as to where your money is actually going because if you don’t know where your money is going it’s very hard to make a plan as to what to do with it. Likewise, be conscious of money. If you are owed a refund from a company then make a diary note to check it in a week. When you pay a restaurant bill take a few seconds to check it first. People make mistakes. Big companies make mistakes. So be conscious of your money to know that it’s not being wasted and if you are promised money, that you receive it.
Mistake #3 Spending Too Much (Not Saving)
If you currently spend more than you earn each week and perhaps it’s evident because you have growing credit card debt for example, then you are not getting anywhere. You need to stop that immediately. It’s a recipe for disaster and you will go financially bankrupt! Conversely, if you’re spending everything that you earn each week, not necessarily spending more than you earn, but just not saving anything each week then you need to rein in a little bit. If you can’t save money (everyone can save they just don’t know how to), then you won’t get ahead financially. Saving is number one. Investing is number two. To get ahead financially so you need to rein back your expenses, which is easily done by tracking your expenses and knowing where your money is going. You weren’t born a spender you learnt that habit over time so you can change the habit. You have to!
Mistake #4 Buying Stuff Instead of Investing
Growing your wealth means more money and more options in your life. You need to invest to grow your wealth (save first and invest second) however if you keep buying “stuff” – items of little or no value, or items that go down in value over time, you will go financially backward. Growing your wealth means buying assets that go up in value however when you buy household stuff and tech gadgets, or cars etc, they generally go down in value over time and they won’t help you increase your wealth. You’ll just accumulate more stuff but that stuff goes down in value so it does nothing for your financial future.
Mistake #5 Racking Up Personal Debt
Personal debts include credit cards, store cards, personal loans, and car loans. These are known as “bad” debts because generally what you use the borrowings to buy often goes down in value over time, whereas borrowing money to buy a property which usually goes up in value is considered “good” debt, so there is a difference when it comes to debt. Racking up bad debt means you pay costly amounts of interest to the bank and you end up going financially backward. Paying interest for personal loans, debts, and credit cards is what makes people financially stuck. Those extra costs take away from being able to afford to invest and grow wealth. The more personal debt you have, the more repayments you have, and the less money you have to spend on yourself your family, and to invest. Racking up personal debt will financially cripple you.
Once you clear any existing debt, do not rack up more. Then, you will find that the amounts you were using to repay the debts with (including interest paid to the bank) can instead be used on yourself in your financial plan and means you can invest that money or use it for things you really want in life and the people you love.
Often when people have growing credit card debt or car loans (they keep replacing their cars every few years) they get into the vicious cycle of repaying debt, then taking out more debt, repaying that debt, and then taking out more debt and it grows over time and people become financially stuck. Those people never have any surplus income to be able to invest or grow their assets and get ahead in life because they are always paying back money to someone instead of investing and making money for their future.
Mistake #6 Spending Too Much On Housing
With any budget aim to spend no more than 25% to 35% of your household income on housing. That doesn’t just mean your rent or your mortgage repayments, that means also anything else related to your housing in terms of council rates, electricity, gas, water, etc any costs associated with your shelter should total no more than 25% to 35% of a healthy budget. That then gives you enough surplus money to comfortably afford your other living expenses and also have some leftover for savings.
Mistake #7 No Emergency Cash
You’ve got to stash some cash away for emergencies. A minimum of $1,000 but preferably $2,000 or more as an initial emergency amount. Everyone has to have access to cash. Just like a business will always have access to cash you too as an individual must always have access to cash for emergencies because unexpected bills pop up and emergencies happen. Fridges die, cars break down, computers blow up and things happen that will not affordable in your day-to-day budget, so, if you don’t have cash available you could then grab for short-term lending which is credit cards with high interest rates attached or payday type loans with high interest rates attached. Remember, anything convenient comes with a cost – even AfterPay! You must take control of your money and have emergency cash savings for when you need it.
Mistake #8 Not Paying Yourself First
The secret to saving regularly and consistently is to pay yourself first not last! Whenever you are paid, you must save first before you spend anything else. That means before you pay rent or your mortgage and before you pay any other bills – save first, spend second. Pay yourself first always because you work for you. If you don’t yourself first it essentially means that you work to pay the taxman, the bank, the grocer, the petrol companies, etc everybody else first and you last and that’s not why you work. Paying yourself first means paying your savings into a bank account that’s held with a separate institution preferably, so you can’t see it so easily. Pay yourself first, do your savings first, and then spend – that is the secret to saving!
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Disclaimer: This information provided is general in nature. It is based on the knowledge and experiences of the author and not intended to be taken as financial advice. It does not take into account the objectives, financial situation or needs of you or any other particular person. You need to consider your financial situation and needs before making any decisions based on the information. You may have to modify the information and do further research, for it to suit your personal financial situation. Therefore, before acting on the information, it is recommended that you consider its appropriateness to your circumstances or consult a financial adviser, tax advisers or legal professional to assist you in doing this