There are many financial mistakes that many of us are making again and again. Which can often lead people to major economic hardship. A lot of these mistakes can easily be avoided, by simply changing your financial habits and putting strategies in place.
Millions of Australians are currently living pay-to-pay according to the Australian Bureau of Statistics. With many unable to financially survive for more than a month if they suddenly lost their job.
To help form healthy financial habits and get ahead, we’ve compiled a list of common financial mistakes and the solutions to put on track to better financial success.
Without a budget, you all lose control and transparency of your finances. Many who earn a decent wage can still struggle to get by, as they increase spending to match.
It’s very difficult to achieve financial goals if you don’t have a solid budget plan. By having a budget in place, you can make better financial decisions and will know where your money is going every month instead of just wondering.
Prepare a budget based on your pay cycles. Using a spreadsheet, is the best way to set up a budget, so it can be updated when your circumstances change. If you are not sure what you spend, start by looking at historical bank and credit card statements; you will be surprised by what you find.
How to budget & save details step-by-step guide to establishing up your budget.
The personal budgeting software You need a budget can also be very helpful tool also.
Going without Insurance
Many people choose to go without insurance to save money. But this isn’t a wise financial decision because your health or income insurance is your safety net if something were to happen. Insurance helps to protect you in the event of a major accident or when health issues arise. Without your income, there is no financial plan.
No one likes to think that something might happen to our health or our family’s health. The consequences are too significant. But it is always best to be prepared for the unexpected, as the fact is, it is a case of when, not if.
If you don’t prepare, you run the risk of becoming one of the many not having adequate provisions for unexpected death or injury/illness and leaving you and/or your loved ones to suffer the financial consequences.
Few people think something will happen to them, and absolutely no one likes paying for insurance, but when you need it, you NEED it. Get a Personal Insurance plan in place.
Personal insurance provides financial security for you and your family in the event of death, serious injury or illness resulting in financial repercussions and a loss of your income.
Understanding the nature of each type of personal insurance will help in identifying how much you and/or your loved ones need. Prepare for the unexpected gives you a thorough understanding of the types of personal insurance and how they work.
A financial adviser can help you ensure you have the right insurances in place to help protect your family’s circumstances and goals.
Not setting financial goals
Failing to plan is planning to fail.
Would you drive your car without knowing where you’re going? Similarly, if you don’t have set financial goals, how can you expect to know what you’re aiming for?
You may have goals in mind such as homeownership, starting a new business, or saving for retirement, but no actual plans in place to achieve these. It’s time to set identifiable financial goals and put strategies in place to achieve them.
Sit down with your partner (if applicable), discuss, and write down where you want to be financially in 1 year, 3 years, 5 years, and 10 years’ time. Decide what you want to achieve individually and together and write down a detailed plan of what you want to achieve and when.
As mentioned earlier, there are many Australian’s who live pay-to-pay and have little or no savings. With the cost of living exploding and households forking out more for accommodation, utilities, food, and petrol. It’s vital to have cash set aside to help you weather unexpected circumstances such as car repair, job loss and health problems.
Expect the Unexpected!
The best way to escape living pay-to-pay is to set up automatic savings plan. Put away some money every pay cycle and ensure the money is transferred to a separate (non-touched) account to your regular daily account. Also, if you receive a of lump sum whether that is a bonus or commission, or an income tax refund set aside some in your savings account.
Making minimal credit card repayments
Banking/Lending institutions have huge profits for a reason. It’s rarely recommended to make minimum credit card repayments, as with typically high interest rates you can end up paying back the outstanding balance multiple times over in additional interest costs.
If you can pay higher repayments each month, you will pay off the debt faster and save yourself money in the long run.
If you have multiple credit cards, plan to reduce the number you have. Try setting yourself a goal to pay off one card at a time. We recommend starting with either of these:
- Pay off the card with the smallest debt first as it will be a great motivator to keep you going.
- If one of your cards has a higher interest rate, consider paying this one off first.
Upgrading to a new car
There were over 1 Million new cars sold in Australia sold last year, although few buyers could afford to pay for them in cash. Sometimes a person has no choice but to take out a loan to buy a car, but how much does any consumer really need a large SUV? Such vehicles are expensive to buy, insure and fuel and unless you tow a boat or trailer or need an SUV to earn a living, is an eight-cylinder engine worth the extra cost of taking out a extra loan?
The sad reality is that the average new car can depreciate as much as 19% in its first year — and that’s just an average. What does this mean for you? Simply, if you buy a brand-new car without a down payment, or if your monthly loan payment isn’t high enough to compensate for depreciation, you could end up owing more than the vehicle is worth.
If you need to buy a car and/or borrow money to do so, consider wisely, perhaps buy one that has less ongoing costs to fuel, insure and maintain. Or buy a used car, since cars depreciate rapidly within the first year, buying used is an opportunity to get more for less.
Invest to meet a purpose
Cash at bank provides liquidity but a low interest on the investment. With record low cash earnings rates, it’s vital that you make sure your money is working hard for you by providing a good return on the investment that fit for purpose. Consider what the plans are for the funds, if you don’t need the liquidity in the short term, that cash at bank provides, consider investing elsewhere where superior returns are on offer over the medium to long term.
Investing can be intimidating to a lot of people. There are so many different options to choose from and it can be hard to figure which is right fit for you. It is vital to consider each type of investment and then determine your asset allocation that aligns with your investment goal. We recommend Types of investments and how they work, which gives you a clear understanding of the types of investments available and which might be best suited to you.
If you’re not sure where to start, why not contact a financial advisor who can tailor an investment plan to cater to your individual need and investment goals.
The bottom line
- Start by monitoring your expenses and capturing excess income.
- Be aware your most important asset to you and the family is your ability to earn an income, so protect it.
- Failing to plan is planning to fail.
- Expect the unexpected.
- Banking/Lending institutions have huge profits for a reason.
- If you need to buy a car and/or borrow money to do so, consider wisely.
- Invest to meet a purpose.