How to Avoid Common Money Mistakes
Nobody’s perfect when trying to avoid common money mistakes. But making mistakes when it comes to building credit, paying off debt, investing or saving money can cost you big time.
Fortunately, you don’t need to commit them yourself in order to learn the lessons. We’ve laid out 5 common money mistakes below, plus how you can avoid (or fix) them.
Ignoring The Problem
We’ve all heard the phrase “burying our heads in the sand”. Which means that we all have a tendency to try and ignore a problem and hope it’ll go away. And this is what many of us do regarding our finances. So before anything else, take a deep breath and look at the situation in detail. You need to understand exactly how things stand.
Take a good look at every aspect of your finances and create a budget to plan how to utilise your money each month. You then need to work hard to watch what you are spending and make sure you stick to your budget. You may have to find ways of either saving money on what you spend, bringing in extra income, or even both.
Living on Your Overdraft
When creating a budget, it is important to keep your spending within the money you have coming in each month. If you have an overdraft facility with your bank, don’t fall into the trap of seeing it as “extra money” and get into the habit of using it every month.
Your overdraft should be seen as a fund just for emergencies. If you are already in the situation where you use your overdraft regularly and are now stuck with that extra debt, it may be better to take out a payday loan with affordable low monthly repayments to get rid of your overdraft completely. Then make sure that you do not use it again unless there is a genuine emergency.
Credit Card Payments
Credit card debt is dangerous because it can build up quickly without you realising. It can feel good – and empowering – to get out the credit card to buy something, but all you are doing is creating more debt.
Ironically, having a credit card can be good for your credit score – but only if you manage it well. For example, if you use it to make a major purchase and know that you will be able to afford to repay the balance quickly afterwards. Ideally, you want to be in a situation where you are paying off the balance in full each month.
Remember to Save
Having savings is important. Even saving a little bit every month could be really valuable for dealing with an emergency. Ideally, you need to have enough savings to be able to cover around three months of living expenses. So if there are any problems with either your job or your home you would be able to survive.
If you’re not currently in the position to save then it is worth considering taking on some extra work or finding some other means of increasing your income even for a short period of time, just to enable you to start getting some money behind you.
Keeping Tab on Financial Products
You need to have a clear understanding of how many bank accounts, loans, credit cards etc that you have. If you have several products and are managing them well, this can have a positive effect on your credit score. But if you don’t really feel in control then perhaps it is time to consolidate them into a smaller number of products that you are able to manage better.
When applying for any financial product, the financial company will check your credit score. Usually leaving a note on your credit score to show that it has been searched by that company. Then the next time you apply for another financial product with another company, the previous search will be visible to that company too.
The problem is lenders could think that you’re not financially responsible. If you have been turned down by one lender, then another lender might decline your application too. You can then find yourself in a vicious circle that is difficult to break out of.
If you are careful to avoid common money mistakes, then you should soon be able to get your finances back under control. If you need any help doing this, for example by consolidating your overdraft or credit card debt into a more manageable loan, then do get in touch with us.