It’s easy to make mistakes when managing money. Our helpful guide lists 6 of the most common errors, and how you can go about making proactive changes.
Creating an unrealistic budget
It’s all too easy to under or over-report our monthly budgets in line with what we’d like to achieve – but ensuring that a budget accurately reflects our income and spending patterns is key.
Having a realistic budget empowers you with the knowledge of where your financial situation is placed right now and also enables you to commit to saving, investing, or repaying your debts to best enhance your future.
Our easy-to-use budget template can help you get started, and is designed to assist you in drawing up a realistic budget that meets your needs and goals.
Taking on risky investments
Investments require an appetite for risk. While money market accounts, for example, are generally regarded as low risk, there are several other options (such as investing on the stock exchange) that could prove riskier but may offer better returns.
To meet your future goals, it’s important to consider what risks you are willing to take, how long you have to achieve your goal, and what products may fulfill these needs. In many cases, having a blend of lower risk and higher risk investments (called ‘hedging your bets’) might offer the best return.
Having a low-risk only investment may not provide the return you need, while a high-risk only investment may mean you could lose your original capital. To build an investment portfolio that works for you, it’s best to seek out a licensed financial advisor.
Missing debt repayments
Failing to make a repayment on debt you owe to your creditors can have serious consequences – not only will your outstanding repayments accumulate interest and become more expensive over time, but your credit score can be impacted negatively – affecting your ability to borrow money in the future.
To get on top of your repayments, you can use the snowball debt management system – where you prioritise your debts from highest to lowest interest. Using this system, you can make the minimum monthly repayment on each account and prioritise overpaying the line of credit that will charge the most interest.
This way, you can successfully close your high-interest loans quickly, and prevent missing repayments or falling into arrears. Some lenders, like Wonga, will even reduce the amount of interest you’ll need to pay on your loan if you settle it earlier than you originally promised.
Under-committing to saving
When designing a savings plan for either a short or long-term goal, it’s easy to fall into a pattern of making infrequent contributions to your savings account. When life gets in the way, it’s also easy to simply forget to deposit money into your account and end up spending it later.
To build a successful savings account, consistency is key. To grow your savings and take advantage of compound interest, a great idea is to create a monthly stop order on your account. For example, you could set a stop order to move a regular amount of money from your current account to a savings account on the 1st of every month.
If you happen to have a sudden windfall or have surplus funds available, you can then make deposits into your savings account as and when you need – which, over time, will accumulate and grow with the additional interest your account will earn.
To take the next step, why not take our 52 week savings challenge?
Not using your employer’s contributions
In many cases, your employer may offer packages designed to assist you in many areas of your life – including medical aid, a pension fund, or funeral cover.
Some of these packages may be mandatory, while others could be optional – however, taking advantage of your employer’s contributions towards these expenses can not only help you access facilities such as healthcare, but can assist in giving your loved ones peace of mind as well.
We’ve all seen at least one item we’ve been tempted to buy on a whim – and while it’s important to enjoy what our money can do for us, a purchase today should not come at the expense of wellbeing tomorrow.
If you find yourself tempted to buy an item that you know you couldn’t otherwise afford right then and there, carefully consider your other expenses or walk away. If that isn’t helpful, it’s useful to have a ‘check’ buddy, who you can contact for their advice and whether they feel your purchase would be generally valuable or useful, or not. Our other financial hacks can help you get ahead.
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