We all make money mistakes from time to time but there are some that are hard to recover from. Here are a few common money mistakes that you should try to avoid:
Failure to Plan
When you have goals, you have something to work towards. These goals might include homeownership, starting your own business, early retirement. Without specific goals, you will flounder aimlessly much like a ship without a rudder and may not achieve much.
Take some time to set solid financial goals and review them each year to be sure they are still relevant and appropriate.
Failure to budget
A budget helps you stay in control of your finances, as you know what is coming in and what is going out each month. This budgeting allows you to create a spending plan for your money, it ensures that you are able to prioritize and will have enough money for your most important needs.
Without a budget, even with a decent income, you may still struggle to get by. A budget, seemingly such a simple tool, is one of the most powerful time-tested tools for saving and investing; it does in a sense hold you accountable for your expenses and guides you to cut back when things are out of control. A budget prevents or reduces money mistakes.
Succumbing to financial peer pressure
In our day-to-day lives, we inevitably encounter many instances of financial peer pressure. This is particularly in the very materialistic and aspirational society that we live in. Financial peer pressure is visible everywhere and social media makes it even more in your face; it is so easy to succumb.
Here are some examples:
“Everyone else” and their family are traveling to an exotic location this holiday. Many can’t afford a very expensive holiday but feel the need to impress.
Many go into debt or bankruptcy over weddings and funerals just to try to keep up appearances.
People buy the latest gadgets to show off to friends and colleagues.
After work your colleagues all go and hang out at the club and order drinks and meals; you can’t afford it but you tag along anyway with your last few pennies!
“The Jones’ are broke” and if you continue trying to keep up with them, you will be broke too! Much financial pressure is tied to the company that we keep. So much money mistakes are made in this sphere. Be sure that you are hanging out with people that add value to your life in motivating and encouraging you to be your best self.
Putting all your eggs in one basket
Diversification is one of the most important rules of investing. The basic premise is that if you spread your investments across various asset classes, you will reduce the risk of losing money, because when one of the assets in your portfolio is struggling, another may be gaining in value and prospects.
A diversified portfolio with cash, bonds, stocks, property, business interests, etc makes it easier to meet your short-medium and long-term goals. You need cash and money market instruments to pay next term school fees and don’t want to be forced to sell stocks at a loss for that purpose.
Borrowing money from friends and family
It is so tempting to borrow from friends and family when things are a little tight. Sadly, sometimes something changes in the dynamics of a relationship when there is a money exchange that makes one indebted to the other.
Feelings of resentment, guilt and even a loss of trust come to the fore, particularly when the money is not paid back on time. This puts a strain on the relationship. Likewise, avoid lending to friends and family; if you can afford to give part of what they need and not expect it back. It is usually a better way to keep the relationship on an even keel.
Where you must borrow from friends and family, don’t treat it casually. This has a record of being a major money mistake. There should be a formal agreement with clear repayment terms. It is nice to have that access to finance from friends and family if and when you need it; don’t abuse it. More often than not, it comes interest-free. Once abused, both the money and the relationship may be lost.
Resigning without a plan
Your boss annoys you, you don’t feel you have great prospects, or you are simply bored. It’s so easy to want to throw in the towel and walk away even though you have not secured another job or haven’t done anything about starting your own business. If you are planning to resign suddenly, be aware of the financial implications.
It is easier to find a job whilst you are still employed. You also don’t want to have any significant gaps in your employment records. Sometimes this is not feasible as you can’t job search while working at your current job. If you are unhappy in your role, start looking and leave when you are ready.
Some Exceptions
If you are working in a toxic environment that is devaluing you and affecting your mental health or psyche, then do try to leave as soon as possible. This underscored the importance of an emergency fund to tide you over with six months of expenses so you can survive whilst you put your plans in place.
Sometimes you are forced to take a particular job out of desperation. You do need a plan to move on to one that is better suited to your interests, skills, and credentials but for as long as you are there, be the best that you can be.
Making financial decisions under pressure
Sometimes people come to you with some “investment” opportunity that boasts of a fantastic return. Particularly when things are a little difficult, it can be tempting to want to take a chance. If something sounds too good to be true, it usually is; don’t get caught out by these offers. If you must take such risk, invest only what you can afford to lose.
Investing should be carefully thought out, usually with professional advice to avoid money mistakes. Impulsive money decisions under pressure or fear often end badly. Take a step back and reflect on your objectives. Base your investment on your risk profile, your goals, timing and needs, and not that of someone else.
Ignoring Insurance
Insurance is there to protect you should things not go according to plan. Things do happen, and you need that safety net in place to lessen the burden. Don’t feel you can go afford to be without insurance just to save the money from the premiums.
Sign up for basic insurance coverage that includes health, life and of course other important assets such as your car and home. Yes, it all adds up, but when something untoward does happen, and they do, you will wish you had this important cover and have one less thing to worry about.
Nimi Akinkugbe has extensive experience in private wealth management. She seeks to empower people regarding their finances and offers frank, practical insights to create greater awareness and understanding of personal finance.
For more personal finance tips, contact Nimi:
Email: info@moneymatterswithnimi
Website: www.moneymatterswithnimi.com
Twitter: @MMWITHNIMI
Instagram: @MMWITHNIMI
Facebook: MoneyMatterswithNimi
