3 Common Financial Mistakes
Managing money should be easy right? After all, if you can add up and take away you should be able handle the money you have. Sadly, keeping control of our finances is a lot harder than it looks. So if your finances are keeping you awake at night, read on to find out what types of money mistakes you might be making.
1. Overstretching Yourself
If you’re in any doubt as to whether you can afford something, then be sure to do the maths first, and never take on long term financial commitments such as rent or mortgage for a bigger better house or car unless you’re absolutely sure you can manage it. Don’t rely on future income, as this isn’t guaranteed. Instead, always work out affordability based on the income you currently have.
If you’re already struggling financially, it’s absolutely vital to be realistic about what you can take on. Take a good hard look at your spending, and don’t commit to what you cannot comfortably afford. You should also build in some slack in the system for any unforeseen expenses, and always be sure you can cover your immediate living costs before even considering non-essential items.
2. Saving Money when In Debt
Having a nest egg for a rainy day is a nice feeling – however, you should never divert money that could be used for paying off debt into a savings account. If you do this, then you will be wasting money on servicing those debts through interest payments. As a rule, you should always pay off debts first, starting with the most expensive. However, if you think you may be unable to easily access credit in the future due to a poor credit record, then using your entire savings to pay off your debts is unadvisable, as borrowing with a poor credit rating is far more costly. Instead, pay off what you can, but keep some savings back for unexpected events.
3. Borrowing Money Unnecessarily
Sometimes it’s necessary to borrow money to invest in a business, or to cover a large and unforeseen expense. However, it’s also very easy to fall into the trap of borrowing money you could actually live without. You should always learn to distinguish between ‘need’ and ‘want.’ Impulse spending is generally a reaction to confusing ‘want’ with ‘need.’ It’s always very easy to convince yourself that dropping £500 on new clothes with a credit card is actually a ‘need!’ Unfortunately this is how many thousands of people fall into unmanageable debt, each and every year.
If you can establish that your reasons for borrowing are legitimate and unavoidable, you should always make sure you borrow at the cheapest rates available, but bear in mind that if you have poor credit, interest rates will be higher. Always read the small print, and make sure you fully understand the terms and conditions. Some lending companies operate an advice forum, Loans Direct for example.