Money Management: Five financial mistakes that people often commit; Know how to avoid them
When it comes to personal finance management, most people think that they are experts in handling their own finances.
When it comes to personal finance management, most people think that they are experts in handling their own finances. For them, running their household with their earnings and saving some bucks towards the end is successful financial management. However, what they ignore is long-term planning as they keep living paycheck to paycheck. While there are several money mistakes that people commit during their lives, some of them are listed here and must be paid attention to:
1. Spending too much money Click Here
If you don’t have a budget, or understand where your money goes, it’s easy to overspend. That’s why it’s important to understand how much you can afford to pay out each week, fortnight, or month, and then allocate regular limits for things like groceries, eating out, and entertainment. Being on a budget doesn’t mean you can’t do anything, it just means you’re in control of spending within your means.
Overspending can be fuelled by peer pressure and wanting to keep up appearances, so be conscious of being swayed by those around you. If you’ve got kids, be realistic about how much you can afford to fork out at high-pressure times of the year, like Christmas and birthdays. Overspending at these times could really push you over the limit.
2. Not having a plan for your money
When it comes to money, and life for that matter, it also pays to have a long-term plan. One of the first steps to feeling better about money is to set some goals. Living day-to-day could eventually tip you into a place of hardship if you get landed with unexpected expenses, or it might mean you can’t live your best retirement life later down the track.
To help prepare for the unexpected, it’s a good idea to set up an emergency fund. Building an emergency fund will help you to stay out of debt if any unexpected costs come up. Set up a separate account and have an automatic payment go into it each pay day. Chances are you won’t even miss what you put in.
3. Being swayed by your money beliefs
It’s important to be aware of where your money beliefs come from, and to try to be objective about your current situation, and where that might lead you in the future. Some people find themselves saying ‘I never have enough money’, or ‘money is hard to come by’ – even if they’re well paid. If you’re aware of why you think a certain way, you can start to change your beliefs.
4. Not understanding how borrowing works
Many people borrow money without understanding what they’re signing up for. It’s important to grasp the true cost of what you’re borrowing, including how interest rates and fees apply – your lender should explain this. Make sure you read the small print and ask any questions you might have before you agree to take out a loan.
Once you’ve signed along the dotted line, it’s a common misconception that your repayments are set in stone. It’s true that this is sometimes the case, but on the flipside, many lenders will let you increase the amount of your regular repayments without penalties. This means you’ll also reduce the amount of interest you pay over the long term, not to mention pay off your loan faster. A small increase can make a huge difference.
It also pays to understand what counts as a loan. When you take out car finance, for example, that’s a loan. ‘Buy now, pay later’ may seem like a good deal, but it’s also a form of borrowing and you may be charged fees if you don’t pay the retailer back on time.
5. Paying the loudest business you owe money to first
For those who’ve got more than one loan and are behind on repayments, it can be tempting to focus on paying the creditor who calls you the most often or sends the most letters. You could be better off looking at your debts as a whole and talking to a financial mentor to see what you should focus on first. One option is MoneyTalks – a confidential helpline service which provides free budgeting advice by phone, text, chat, or email.
1. Spending too much money Click Here
If you don’t have a budget, or understand where your money goes, it’s easy to overspend. That’s why it’s important to understand how much you can afford to pay out each week, fortnight, or month, and then allocate regular limits for things like groceries, eating out, and entertainment. Being on a budget doesn’t mean you can’t do anything, it just means you’re in control of spending within your means.
Overspending can be fuelled by peer pressure and wanting to keep up appearances, so be conscious of being swayed by those around you. If you’ve got kids, be realistic about how much you can afford to fork out at high-pressure times of the year, like Christmas and birthdays. Overspending at these times could really push you over the limit.
2. Not having a plan for your money
When it comes to money, and life for that matter, it also pays to have a long-term plan. One of the first steps to feeling better about money is to set some goals. Living day-to-day could eventually tip you into a place of hardship if you get landed with unexpected expenses, or it might mean you can’t live your best retirement life later down the track.
To help prepare for the unexpected, it’s a good idea to set up an emergency fund. Building an emergency fund will help you to stay out of debt if any unexpected costs come up. Set up a separate account and have an automatic payment go into it each pay day. Chances are you won’t even miss what you put in.
3. Being swayed by your money beliefs
It’s important to be aware of where your money beliefs come from, and to try to be objective about your current situation, and where that might lead you in the future. Some people find themselves saying ‘I never have enough money’, or ‘money is hard to come by’ – even if they’re well paid. If you’re aware of why you think a certain way, you can start to change your beliefs.
4. Not understanding how borrowing works
Many people borrow money without understanding what they’re signing up for. It’s important to grasp the true cost of what you’re borrowing, including how interest rates and fees apply – your lender should explain this. Make sure you read the small print and ask any questions you might have before you agree to take out a loan.
Once you’ve signed along the dotted line, it’s a common misconception that your repayments are set in stone. It’s true that this is sometimes the case, but on the flipside, many lenders will let you increase the amount of your regular repayments without penalties. This means you’ll also reduce the amount of interest you pay over the long term, not to mention pay off your loan faster. A small increase can make a huge difference.
It also pays to understand what counts as a loan. When you take out car finance, for example, that’s a loan. ‘Buy now, pay later’ may seem like a good deal, but it’s also a form of borrowing and you may be charged fees if you don’t pay the retailer back on time.
5. Paying the loudest business you owe money to first
For those who’ve got more than one loan and are behind on repayments, it can be tempting to focus on paying the creditor who calls you the most often or sends the most letters. You could be better off looking at your debts as a whole and talking to a financial mentor to see what you should focus on first. One option is MoneyTalks – a confidential helpline service which provides free budgeting advice by phone, text, chat, or email.
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