Discover the common financial mistakes to avoid – and how to avoid them.
In order to achieve the things, you want in life, it’s important to be canny when it comes to your career and switched on when it comes to personal finances.
However, this is more easily said than done. Financial matters are often complicated or confusing, and sometimes it feels preferable to bury your head in the sand, rather than face up to the situation!
The best thing we can do is to be aware of the potential pitfalls, and to navigate around them in style.
Do don’t feel guilty or ashamed if you’ve made these money mistakes. I have learned the hard way and made most of these financial mistakes too. I’ve made little mistakes. Big blunders. Sometimes I’ve failed absolutely. And that’s OK.
Mistakes are valuable life lessons that helps us grow and learn. Everyone makes mistakes and our mistakes are proof that we are trying.
So, here are ten of the most common—and most costly— financial mistakes to avoid (and advice on how to avoid them):
The 12 Biggest Financial Mistakes to Avoid
1. You Are Emotional About Money
Taking about money can elicit emotions many people don’t want to face – emotions such as same, guilt and fear.
This behaviour often stems from lack of financial confidence, past money mistakes and the possibility of running out of money, which leads to the feeling of shame and failure.
You need identify money for what it really is. Money is not shelter, nor food, nor even the new house.
It’s not the car or the holiday…Money is just a tool to get what you want. Separate the outcome from the actual means to get the outcome, and learn to make financial decisions from that detached place.
2. You Don’t Create a Budget
You wouldn’t open a business without writing a business plan, so why do you accept your pay check and spend it willy nilly?
Smart women plan ahead. They pay themselves first and spend the rest. They know roughly what their outgoings will be each month, and therefore what will be left over for holidays, clothes and other discretionary spending.
Save first and spend what’s left over or keep a portion of everything you make. The key component to wealth building can simply be expressed as Pay yourself first.
Wealthy people pay themselves first, and then pay the bills. From time to time, you hear stories about celebrities such as Katie Price going bankrupt.
What happened? They obviously never saved a portion of their income. If they had, they would never go bankrupt.
If you don’t like the word budget, then call it a spending plan. I find it much more empowering to see it this way. You get a certain amount of money each month and you get to choose how you’re going to use it!
Your spending plan is the single most important tool to helps you prioritise your spending, so you can achieve your personal goals and build wealth.
Prioritising our spending allows us to use our money for those things that are important to us. Check out this blog post on how to create a spending plan that aligns with your value.
3. You Don’t Keep Track of Your Spending
One of the quickest ways to save money is by tracking your expenses.
By simply tracking and paying attention to where your money is going, you will be amazed by how much you will save and you can start looking out for opportunities where your money could be better spent.
Why is important to track your expenses?
Tracking your expenses is the sure-fire way to know where your money goes and you cannot create an effective spending plan without knowing your spending history.
It’s easy to lose track on what you’re spending throughout the day, especially if you’re in the habit of nipping in to buy a latte from the coffee shop before work, or grabbing a magazine from the shops for the evening.
These little expenditures are easy to overlook, but they can add up over the course of a year.
For example, spending just £5 a day (that’s a cup of coffee and a cheap magazine) adds up to £1,825 per year – which is enough to open an investment account or go away to Spain for a fortnight in the sun. What’s not to like?
We know what we’d rather do! If you think you’d also rather have a holiday than a regular hit of expensive coffee, why not buy a thermos flask and make your own to take to work?
And instead of those magazines, you could borrow books from the library for free!
It may not sound sexy, but diligent tracking is crucial for financial success. Get into the habit of tracking your expenses.
You can simply use a notepad and if you have a smart phone, the free Money Dashboard, Cleo or Speedometer app lets you enter how much you are spending, then tells you how much you have left.
Always remember, what you track increases and what you ignore decreases. Losing track of spending is a financial mistake that can be easily fixed. So, get started today!
4. You Don’t Negotiate Your Salary
How much are you worth?
We all have a fair idea of the going rate for the job we do. If you are paid less than your colleagues, or think that you are going above and beyond what is expected of you, you deserve an increased financial reward.
Many of us feel awkward about raising this issue with our line manager, but you have to put the issue on the table.
Incredibly, according to research conducted by Linda Babcock, an economist at Carnegie Mellon University, men are four times more likely to negotiate their starting salary than women.
This goes some way to explaining why women are still paid, on average, 17.5% less than men.
Put into simpler terms, this means that for every £1 a man earns, you’ll only earn 82p. Or, even more alarmingly, you’re essentially working two months of the year for free.
Don’t be afraid to ask for a salary that reflects your skills and qualifications. Every salary is negotiable, and if you’re worth it, they’ll pay it.
Pick a suitable occasion – your annual review is ideal – and work out in advance what you are going to say.
Have a figure in mind, and be prepared to justify, clearly and concisely, why you should receive that rise. If you don’t ask you don’t get. Check out this blog post on how to confidently ask for more money or a promotion.
If you are self-employed, find organisations or clients that pay you what you’re worth!
5. You Don’t Have a Rainy-Day Fund
We all hope that the proverbial rainy day will never come. And then it sneaks up on you when you are least prepared. Just like an insurance policy, which you hope you will never need.
Not having an emergency fund in place is one of the most common financial mistakes to avoid.
It is essential you save a small amount of money each month, and don’t touch it unless there is an emergency.
The emergency in question could be anything from losing your job, your landlord ending your tenancy, or even a friend or parent falling ill and needing you on hand for a while.
Once the pot reaches a healthy size (ideally 3-6 months of regular expenditure, including rent), you can start an investing plan from as little as £50 so your money starts working for you.
6. You Don’t Set Financial Goals
Do you set financial goals? Financial goal setting is the first step to financial success.
I don’t mean a broad financial goal like you want to be financially successful. Or you want to be a millionaire.
That’s not a specific financial goal.
If you have not yet set a clear goal then this is one of the biggest financial mistakes to avoid.
Financial goals are those things you want to have, do and experience that cost money. They help you direct your time, money and energy in turning your dreams into reality, so you don’t get caught up in the day-to-day expenses.
They also provide the motivation and encouragement to stick to your budget and keep on track towards what is most important to you.
Why is money important to you?
Write it down in form of goals. Then set financial goals that are specific, measurable, actionable, realistic, and time-bound. Then create an action plan to reach your goals.
Here is an example of a specific financial goal to help you get started:
By the 31st of December 20XX, I will have invested £3,000 by transferring £250 to my investment account each month.
Think about your short-term and long-term needs and set yourself some exciting financial goals.
7. You Don’t Have (Enough) Money to Invest
An incorrect assumption many of us make when it comes to investing, but sometimes this is wrong.
Most of us probably have the money to invest and the truth is that you don’t have to have a substantial amount of money to start investing.
If you can afford to buy a coffee or go out on a night out, you can afford to invest.
The simplest route to start investing is through stocks and shares ISAs and learn along the way. Did you know that you can start a regular investing plan from as little as £50.
And if you don’t have £50 to invest right now, Wealthsimple, offers a flexible investment solution with no minimum amount. So yes, that means you may enter the investment arena with just £1.
8. You Don’t Track Your Net Worth – Who Does That!
Your net worth is your financial snapshot at a given period. To calculate your net worth, take away your total debts (including your mortgage if you have one) from your total assets (including the value of your home if you own one). This equals your net worth
You should focus on growing your net worth because net worth is the true measure of financial security and having a positive net worth gives you the ability to create income.
Saving money is the first step to increasing your wealth, but to really get results you need to work on building your assets by investing.
In plain English, this just means acquiring things that increase in value over time like property, stocks, and bonds.
9. All Your Savings Are in Savings Account
If you’re putting money aside in a savings account, then that’s a really positive step towards guaranteeing a more secure financial future.
However, are you sure that you’re putting your money in the best possible place?
Find high interest accounts to help you maximise your savings. If you want to find out which account is best for your savings, use comparison tools like the MoneySuperMarket.
The idea is to move your savings into a high paying savings account and gradually build your wealth.
10. You Leave Money Matters to Your Other-Half or Someone Else
Many women prefer to leave the management of their finances to their dads or husbands, rather than taking responsibility themselves.
It’s tempting to simply pass the task on to someone else, but this decision has many disadvantages.
Psychologically, it places you in the role of a ‘dependent’; reliant on someone else to make the major money decisions. It also means you have no real control over your finances, which can make you feel powerless.
The world has changed: you should take an active role in deciding how money is spent and invested.
Many women tend to take back seat when it comes to their own finances because we have a countless good justification for doing this. Common excuses are time, energy, and not disposition.
Financial planning and budgeting may seem time consuming, dull and, at times, complicated, but you must take an active interest in your own financial affairs regardless.
Asking well-informed questions and staying aware of what’s going on, even if someone else (a partner, a financial advisor etc.) is working on your behalf – make this effort, it is well worth it.
Get involve in the family finances and not just leave it to your partner; not only in making purchases but in making long-term investment decisions. The more involved you are the better you get.
It’s also a good idea to have your own bank account, and not just a joint account. A joint account is useful for joint goals and paying bills.
However, a personal account gives you the freedom to spend when you want to spend, make some financial decisions and take control of your financial destiny. It’s an empowering feeling, and one which is VERY important to have.
Don’t be like lady Gaga who went bankrupt due to her complete lack of interest in money.
WANT SOME FUN MOTIVATION TO GET STARTED?
Focus on the outcome!
Write down what you want to do and have in your life that cost money. Is it a new home, start a business, debt freedom, travel, contribution, retire early …whatever excites you.
Set your timer for 15 minutes and write down what you really; really want.
11. You Don’t Research Before I Shop
The internet has made retail a fiercely competitive marketplace, and if you buy from the first site you come across, you could be spending more than you need to.
In her bestselling book, Mrs Moneypenny’s Financial Advice for Independent Women, Heather McGregor states: Whatever you want to do more cheaply – go on a holiday, change your car – will take to me to achieve it.
Comparison websites can help you to locate the best deals, and it’s worth making the extra effort, as you could save yourself time and hundreds of pounds over the course of the year.
12. You Miss Paying My Credit Card Bill
According to statistics from MoneySuperMarket, more than 3 million people in the UK missed a credit card bill payment in 2012. Don’t think it’s a big deal? Think again.
Missing a payment could have a significant knock-on effect for future applications for products such as credit cards, business loans and mortgages.’ In short, it adversely effects your credit score, which is not good.
Keep expenditure on your credit card to a minimum, and only spend what you know you’ll be able to pay back by the end of the month. In this instance, it pays to keep an eye on your finances.
Achieve Your Financial Goals Faster.
Did you know having a plan can help you reach your goals faster in both the short and the LONG-TERM than those who have no plan?
Achieving your financial goals and keeping you motivated for financial success is EXACTLY what our Financial Success Planner is all about.
People who use the planner are more focused on their financial goals and absolutely love it!
But even better than achieving your goals is the feedback we get about how the planner changed their money habits, and helped them achieve their financial goals quicker, than then they thought possible.
There are other financial mistakes to avoid, too; I doubt this list is exhaustive. But I think I have covered the major ones. If you can avoid these, you will be well on your way to financial success and building wealth.
Which one of these issues made you the most uncomfortable? Make a note, because that will be a great place for you to get started and start creating the life you truly want!