Money Mistakes to Avoid

Nobody wants to imagine themselves in financial hardship or high debt. The troubling fact is though, that falling into money trouble can be easier than you think. Being aware of some of the most common pitfalls will help you not only survive the financial journey but enjoy the ride and reach your intended destination. Below are nine money mistakes to avoid.

1. Money Mistakes – Unnecessary Spending

Some like to call it “death by twenty-dollar bills”. You might be familiar with the reasoning of “only taking out” a twenty dollar note from the ATM, or “only grabbing a coffee”. It is easy to justify minor daily expenses. But the truth is, these small daily spends usually add up to be the biggest culprit in sabotaging our financial goals.

For example, perhaps you only get one coffee every day you work? That’s at least $25 per week and whopping $1,300 per year.

This might not seem like a lot, but if you also add up the unnecessary grocery trips, streaming services, packs of cigarettes or smashed avocado on toast on Sunday mornings, you might start to see the destructive trend. A proactive approach to still enjoy your life the way you like is by planning your small spending moments with a budget. This will help you track your spending and keep it under control. It is a good idea to pause from time to time to reflect on what really brings you happiness in life and what is worth your money, in the short term and in the long term.

2.  Money Mistakes – Subscriptions

Following on from seemingly small expenses like streaming services, anything that you find yourself renting or paying for ongoing services can really dig a hole into your finances. If you haven’t stopped and analysed what you are paying for recently, it might shock you to see just how many payments you have accrued over time. Think gym memberships, app subscriptions, streaming TV services, Spotify or Apple Music, kids’ educational subscriptions, food subscriptions, the list goes on. There are so many opportunities for you to accidentally have your money tied up and spent before you even have a chance to make it. Although some of these services are great and often necessary to fit in with your lifestyle, they can often be the first to cut out of your budget when money gets tight or when you are keen to save more.

3. Money Mistakes – Credit Card Pitfalls

Even though it is an ordinary thing to own a credit card these days, it does not necessarily mean it is best practice when it comes to a successful financial journey.  In fact, it generally seems to be that having a credit card can encourage you to relax your self-control and restrain over time and potentially rob you of a financially secure future. Using a credit card regularly might even indicate that you are not using a budget, which might be another pitfall to your financial future. You might know the principal of keeping your money under control before it begins to take control of you. But on a more practical level, if you make a habit of using a credit card for purchases, you will be paying far more than you need to in interest, digging yourself a big debt hole that can often be incredibly hard to escape from.

4. Spending Too Much on Your House

When it comes to buying a house, you need to look out for something with repayments that you can afford, no matter what life throws your way. Life can look very different from one year to the next, with increasing interest rate, possibly changing careers, having children, sickness and injury and other unforeseen hits to the budget or income. Having a house that you can imagine yourself in for a long time is great, but practically speaking, you also want to work out whether you can afford to pay for it for a long time too. When buying a house, the home loan repayments are not the only cost you need to consider. The bigger the house, the bigger the maintenance and utility costs can be, so it is worth thinking before you splurge on your big buy.

5. Dipping Into Your Home Equity Too Much

Refinancing is not always a bad idea. Sometimes it works to lower your interest rate or to consolidate bad debt to pay it off faster. All of this should be done with good advice at hand. What some can fall prey to however, is using a home equity line of credit as though it were cash to use at a whim. This treats your equity like a piggy bank or worse, like a credit card and we know what that means, paying extra interest for no good reason.

6. Living From One Pay Day to The Next

It is unfortunately all too common for people to find themselves in this position. Living beyond your means is a terrible position to find yourself in when disaster strikes such as job loss or a recession. In fact, it may only need to be a car engine problem to be enough to put you into debt or financial strife if you do not have a buffer amount of money set aside. A good rule of thumb would be to have about three months of income set aside in an easy access account, to allow you to keep your options open, and keep your house, when life “happens”.

7. Buying a New Car

Another money mistake is the need to keep up with the Joneses. You might be able to afford the repayments on your depreciating asset, but if you cannot afford the actual car upfront, then you might be finding yourself taking a few steps backwards financially. When buying a new car or borrowing money to do this, take time to think about one that is affordable to drive with petrol and maintenance. Some cars have expensive parts or need fuel more often, and this all adds up to shave money off from other places that could be used to pay off debt or get ahead.

8. Money Mistakes – Not Thinking Ahead to Retirement

Making extra contributions to your superannuation could be the different between living off the government pension or living a comfortable life with choices in your retirement. When should you start contributing to your retirement? The answer to that is, yesterday. But in all seriousness, the urgency to put away for the future is real, especially if you want to have the option to stop working eventually. If you haven’t already done so, speak to your financial planner to work out how much you need to retire on with your ideal lifestyle, risk tolerance, objectives and what steps you need to take to get you there.

9. Money Mistakes – Not Having A Financial Plan

They all say it is more about the journey than the destination right? Well that may be true financially too. More specifically, the way you navigate the journey will determine if you arrive or not at where you want to be one day. That all depends on what you do today, and the day after that, and so on, until one day you will look back to see how far you have come. Setting aside vital time amongst your busy life to speak with a financial planner as well as your significant other on a regular basis is life changing and worth doing.

Avoid money mistakes – treat money carefully and soberly and with good financial advice and the right money habits set in place, you will reach your intended destination. Get in contact with Elliot Watson Financial Planning today 02 4038 1623.

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