Ever feel like you're the worst person ever at managing finances? Think again! We're all guilty of overspending, ignoring our debt, or even wasting money from time to time. In fact, there are several common mistakes we are all making regularly.
Of course, just because it is a regular occurrence, it does not mean it is something to do. The word 'mistakes' should be a big enough clue. By continuing to follow on this path, you will only sink further and further into a financial hole.
To avoid this from happening, it is essential to identify the money mistakes you make. The following five points are likely ones that sound familiar to you.
1. You do not have a monthly or weekly budget
Have you ever found yourself in the position of keying-in your credit card's pin code, alongside a silent prayer your card will not be declined? If so, you are far from alone in that regard.
Many people don't have a budget of any sort. Instead, they will bumble through the month hoping ends will somehow meet. It goes without saying, but this is not exactly a strategy you should employ. You may get lucky and avoid any financial penalties for a specific month. Yet more often than not, you will land into some form of debt.
To avoid this happening, take control of your finances by assessing your income and expenses. You will already know the total outgoings must be smaller than your current revenue. If that is not currently the case, or if you are walking a fine line between the two, you will need to look into ways of trimming down your expenses.
When it comes to slicing certain expenses out of the equation, examine the non-essentials you are currently purchasing. Do you need to spend the money on a weekly takeaway? Are those name-brand snacks necessary? Can you do without satellite TV channels? Beyond the non-essentials, use comparison websites to see if you are getting the best value with your current utility suppliers.
Once those expenses are reduced, make a suitable budget and train yourself to stick to it!
2. You bury your head in the sand
When someone owes money, it is natural for them to run a mile and hope the problem simply disappears. Some do it for a few weeks, while many will keep running for years before finally breaking down. There is just one issue with this: debt will not simply vanish. It will follow you like a shadow, one that will become increasingly ominous as time goes on.
Although the fear exists, stop feeling so worried about the debt and tackle it head-on. Find out what you owe and formulate a plan to pay it back. 'Better the devil you know,' is one of those sayings that is very true when it comes to financing, so take ownership, and figure out how you are going to handle it.
3. You want the things your friends have
We're all prone to envy from time to time. Whether it's a nicer car, more holidays in the sun, or a seemingly endless pit of money, our friends often seem to be doing better than us. However, you can never judge something on the surface. You never quite know what situation your friends are actually in. They might even be putting up a social media façade to deflect from the fact they cannot afford their public lifestyle.
Whatever the situation may be, never aspire to match your friends, or anyone else pound for pound. Instead, stay in your financial lane. If you earn less or owe more, you will have to realign what you are expecting to own and enjoy.
It's not at all bad, though. You might find that having less makes you more creative in how you spend your money. Plus there are many inexpensive - or even free - activities and items that deliver plenty in terms of fun and fulfilment.
4. You don't have an emergency fund
Listen, we already know that meeting your monthly outgoings is a tall enough order before you even contemplate pensions or savings plans!
Even so, you should make sure you open an emergency account so you can build up a stash of money for unexpected circumstances. Many individuals don't have one of these, but cars break down, boilers go bust, and roofs fall in when you're least expecting it. As a result, focus on creating an emergency fund to deal with life's nasty surprises.
Fortunately, you do not have to start committing a sizeable chunk of your wages each month. Even if you only part with a few pounds a week, this can soon build up into a necessary fund when an emergency strike. For example, if you put aside £20 a week and stick to it, you will have more than £1,000 tucked away after a year.
5. You're biting off more than you can chew
It's natural to want to pay your debt quickly and be rid of payments. With that said, do not go too far in that direction. Remember to try and go steadily - getting out of debt is ultimately a marathon, not a sprint.
Of course, you must pay back what you can afford every month. This total should also be above the minimum requested by the debt collector - otherwise, you will barely scratch the surface. In fact, if you only pay the minimum, you might end up spending hundreds, possibly even thousands over the years while the debt remains in pretty much its same state.
Yet it is actually essential to pay back what you can afford every month, which does not necessarily mean pushing yourself to the edge of your financial limit. Instead, you should be able to repay your loans and meet your outgoings, and still have a little bit leftover just in case. This does not necessarily mean a significant financial emergency, either. It could be something relatively small such as purchasing the children's school uniforms or a birthday present for a friend.