Whether you’re 20 or 70 years old – none of us are perfect when it comes to financial matters. No matter what age you are, making the same money mistakes over and over can cost you thousands and thousands of rands that could potentially go towards a comfortable retirement, your children’s college fund, or a once-in-a-lifetime trip.
Here are 5 of the most frequent financial mistakes – and how you can avoid them.
1. Saving money when you have debt
Everyone should have some emergency savings in place – in fact, it’s absolutely essential for financial security. Financial advisors recommend having between three and six months’ worth of your salary saved, so that you can weather storms like unexpected bills, unemployment and household disasters.
However, if you’re saving more than that and you also have expensive credit or store card debt built up, (or high-interest personal loans), then it’s time to rethink your priorities. After all, the interest you’ll be paying on that particular debt will be much higher than the returns you’re earning on your savings.
Always keep an emergency fund, but remember to prioritise paying your debt first so it doesn’t cost you far more in the long term.
2. Robbing Peter to Pay Paul
It’s never a good idea to spend more money than you are currently making in your job. If you find that you are living beyond your means on a consistent basis, you will need to sit down and really assess where all of your hard earned money is going. Cut all the un-needed expenditures that you’re making as that money could go towards your savings, student loan debt, other types of debt payments or even a down payment on a house. You don’t have to cut all of the fun stuff out of your budget, but consistently living above your means can get you in hot water later on down the line.
3. Buying things you can’t afford on credit
Consumers often think that because they can get credit to cover a new television or expensive kitchen equipment that they can afford it. The truth is if you need to get it on credit then you can’t afford it.
Saving up for a few months with money from your salary means that when you do eventually buy the item it’s yours outright, and the financial burden of paying for it has already passed. The rule of thumb is: If you cant afford it after a few months of saving up, then it’s probably not a purchase that you should be making in the first place!
4. Living on borrowed money
Credit cards, overdrafts and loans all offer a quick solution to debt or financial struggles. However, these ways of obtaining cash all carry hefty interest rates, meaning although this money is yours immediately – in the long run, not only do you need to pay this back, but you will be paying your own hard-earned cash out for the privilege.
It can feel like a good idea to take out a credit card when it is offered to you, or take a loan out for general spending, but these are long term commitments, and if your situation changes you may find yourself living entirely off of money that isn’t actually yours. It can be quite a negative experience mentally to feel that you have no money of your own, so it’s best to avoid overdrafts or loans.
5. Making minimum repayments
When you do have credit card debt it can be tempting to pay off just the minimum amount each month. However, that can really backfire as it means you’re left paying interest for far longer -resulting in a much higher overall bill. Clearing the debt by more than the minimum can save you hundreds of rands in the long run, even if it is tough to manage on a monthly basis.
DON’T FORGET: If you need guidance regarding your debt, contact us and we’ll get you started!