9 Costly Money Mistakes—And How to Avoid Them
There are so many small mistakes that one can make that can completely derail any financial plans you might have had in place. By making small, consistent changes, you can avoid making these mistakes and reach your goals faster than you would have.
1. Overspending on Small, Recurring Expenses
Small expenses can add up quickly if you allow them to get out of control. A $6 coffee might not seem like much, but having that same coffee every day quickly adds up to $180 each month, and that’s if you only buy one per day, which is unlikely. Try being mindful of your spending habits by making your coffee for lunch at home instead of buying it each day. This can have a significant impact on your monthly spending.
2. Misusing Credit Cards
Credit cards are often considered free money, and people tend to spend excessively and only pay the minimum monthly repayment. This can lead to serious debt and overspending. Try using your credit card for planned purchases only and make the repayments in full or as close as possible. Keeping your credit card in check can help keep your debt in check, but you’ll always have money available in an emergency.
3. Living Beyond Your Means
This is one of the easiest ways to get caught up in life and debt. Most people want to live a luxury life, so as soon as they get some increase, their expenses go up to try and fall in with that lifestyle. Rather than scraping the bottom of the life you aim for, build on the one you have. Direct some of the excess money to savings or pay off some debt. This additional boost will be of greater value in the long run than spending your money as it gets more.
4. Investing Before Paying High-Interest Debt
It’s a great idea to invest money, but when you have high-interest debt, paying those debts off first can be more beneficial in the long run. Prioritize paying off debts with high interest. As soon as those are paid off, you’ll have more money free to invest, which will also grow much faster than it would have because you have more to put in.
5. Ignoring Budgets and Financial Reviews
Not having a budget or reviewing your subscriptions can lead to wasted money. A budget shows you exactly where you need and can spend comfortably. You’ll know exactly how much free money you have left and where all your money goes. Small subscriptions can often be overlooked, leading to wasted money. Adjusting these expenses every quarter can help you stay on top of your spending habits.
6. Lack of Emergency Savings
Having a safety net available for unforeseen expenses helps avoid using the money you need for other expenses. Anything can happen out of the blue, and you won’t have those expenses in your budget. Having emergency savings can cover those costs without disrupting your entire month. Ideally, having 3-6 months’ coverage for your expenses is the goal, but working your way up to that starts one step at a time.
7. Underinsuring or Skipping Insurance
Insurance might seem like an inconvenience or even a waste of money sometimes, but when push comes to shove, insurance can save you from financial ruin. Always have adequate coverage and try to bundle your insurance (e.g., home and car) for discounts and better deals.
8. Paying Only the Minimum on Credit Cards
Paying only the minimum amount of money on your credit card can cost you a lot of interest and waste time. Try paying off more than your monthly repayment amount and start with high-interest debt to make the most significant impact. The additional amount you add to your card helps significantly bring down your outstanding balance over time.
9. Overlooking Tax Efficiency
Taxes seem like a considerable schlep, but they can save you a lot of money if done correctly, depending on your expenses. You can overpay on taxes by using the wrong codes or even lose out on tax relief for things like pension contributions. You can always talk to a tax specialist to ensure everything is done correctly and you are fully benefiting.
References:
Top 10 most common financial mistakes to avoid
10 Financial Mistakes to Avoid at ALL COSTS!