1. Spending on Useless Things.
We can work very hard to earn money and then we can easily waste our hard earned efforts by purchasing things on a whim. If you are in the habit of spending on things you rarely use or don’t need. Try to be discriminating. Think how many hours of work you have to spend in order to buy that 22nd pair of shoes.
2. Becoming Obsessed with Finance.
Money is an essential part of modern life. However, we need to give it its proper place. Money should not be our sole goal. Money is a means to an end, rather than an end in itself. If you devote your whole life to accumulating money, you will be missing out on much life has to offer. At the other end, if you ignore the minimum of financial prudence you will find yourself in debt and therefore you will spend too much time thinking about your debts and how to reduce them. Manage your finances so that they work for you.
3. Paying debt at the highest interest payment.
If you borrow money on a credit card the interest payment may be 17%. On a store card the interest rate can be 25%. If, however, you borrow through having a mortgage the interest rate may be only 5%. A personal loan should average around 7-8%
$5,000 at 17% compound interest will increase to $11,670 after 5 years.
$5,000 at 5% compound interest will increase to $6,416 after 5 years.
This shows the significance of moving debt to the lowest interest payment. Always pay off your credit card debt first. If possible remortgage and switch high interest debt to a lower interest payment.
4. Remaining Ignorant of your financial situation.
When people’s financial situation deteriorates some people have a tendency to try and forget it as much as possible. This just makes the situation worse. All we do is to live in denial about how bad our situation is. As a consequence we take no steps to rectify the situation and therefore a small problem becomes a serious headache in the future. Always try and be clear about how much debt you have, where it is and how much you are spending.
5. Not taking any Financial Advice
At school we don’t get taught about financial matters. This is a shame because it is a life skill we all need. However, we do need to learn about financial issues, whether we like it or not. If you are uncertain about how to clear debt or pay off your mortgage take advice from those who can help. Don’t feel you need to struggle through on your own.
6. Missing Credit Card Payments.
If you miss a credit card payment you will not only have to pay a penalty of upto $50 and interest at 17%, but, you will also damage your credit rating. If credit rating doesn’t mean much to you now, it will in the future. If you wish to take out loans and mortgages a poor credit rating makes it more difficult and expensive to get a loan. Avoid at all costs missing credit card payments.
– Set up a direct debit to pay minimum on your credit card balance.
– If you do miss a payment by mistake. Write to your bank giving an excuse like the cheque got lost in the post – They may let you off.
7. Lending Large Sums to Friends
“The holy passion of friendship is so sweet and steady and loyal and enduring in nature that it will last through a whole lifetime, if not asked to lend money.”
– Mark Twain.
Of course in modern life we do need to borrow money. But, it is best to borrow from financial institutions rather than our friends. It places great strain on both the lender and the borrower. Unless you are very careful, it can cause an unnecessary breakdown in your friendship.
8. Renting never Buying
Why do people say: “renting is dead money” ?
If you rent a house you will have to make regular payments until the day you die. You get nothing in return from your rent payments (apart from the gratitude of your landlord.) Furthermore the cost of renting tends to go up by at least inflation. Therefore, if your rent costs $500 a month, it will continue to increase throughout your life. If you buy a house on a 30 year mortgage, then it means when you retire you will be able to live rent free. Also your mortgage payments will not increase with inflation. (they will vary with interest rates) but in the long run the payment should stay about the same. This means that over time inflation will reduce the real cost of paying a mortgage. If your mortgage is currently $800 it is a big % of income, however, in the future it will be less.
9. Getting Caught in Financial Bubbles.
Don’t get carried away by markets which seem to be constantly rising. If people are saying “This is a one way bet” start to be suspicious. Try to look beyond short term exuberance and consider the long term potential.
10. Lack of Diversification
If you do have savings don’t put them all in the same place. Spread your investments around so that you are not reliant on a small number of shares / investment schemes. If you do invest in the stock market be prepared to lose your money.