We all make money mistakes and in good times we still manage to make ends meet, but in today’s tough economic environment, money mistakes can have serious consequences.
The problem for most consumers is that the more depressed the economy gets, the more it takes some retail therapy to make us feel like we’re still in control. And retailers know that the average consumer is not immune to the temptations that cover the shelves and when they see the potential pick-me-up, all good intentions are thrown out the window and we often find ourselves in a worse financial situation than before. .
Here are some of the worst money mistakes:
- We spend more than we earn
- Eliminate financial planning
- Don’t save for emergencies
- Delay retirement savings until later in life
- It takes a long time to pay off a high-interest loan
- Buy a new car without considering used options
- Not buying enough insurance coverage
- Does not monitor our credit scores and credit reports
- Have no will.
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Spend more than you earn
Claire Klassen, consumer financial education specialist at Momentum Metropolitan, teaches young people how to avoid everyday money mistakes and she says South Africans are heavily in debt, almost half of them can’t pay their bills in full, which means spending more than you earn . it is a problem in South Africa.
“Everything is more than you can chew type of mind. If I earn R20 000 after deductions, I will not be able to continue to pay R25 000 in monthly expenses, using my own net income,” he said.
Don’t have an emergency fund
South Africa has a bad reputation when it comes to savings, but how important is it to have an emergency fund and how much should be in it? Klassen says the statistics are grim when it comes to South African individuals saving and preferring to rely on family members, children, siblings or extended family in times of need.
“It is very important to have an emergency account and release the load as a real example of the emergency situation that hangs over our heads, with geysers and short-circuiting refrigerators, damaged tires from driving in the dark on roads with many potholes, because heavy vehicles carry many things that it should have been distributed by rail, destroying the roads.
The risks associated with being a South African mean we need to think about preparing ourselves for unplanned expenses, he said.
“The best way to do this is to have an emergency fund, with at least 3 to 6 months’ worth of expenses. This one thing, done correctly and done regularly, will ensure you are protected from unplanned expenses that will ruin your finances.
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Take savings for the holidays
Would it be a money mistake to use money from investments or an emergency fund to pay for a vacation? It is after all the money saved.
Klassen says that if you have an emergency fund you should decide how you spend it.
“If for some reason you never have an emergency or you can go all the way without having to dip into your savings, then feel free to access your money, but you need to make sure you leave at least 3 to 6 months in your emergency savings. account.”
Her advice is to put the money to work for you.
“If you need a break, think about this: will I need this money in three months? I’m not a fortune teller, I can’t see the future. I don’t know if I need an emergency fund to make emergency payments.
They say it is equal to the money from your investment.
“If you feel that your investment is a waste of time because you cannot see immediate value, then you should consult a professional financial advisor.”
If you have enough funds to complete the debit from your income and action plan for retirement, you can put your investment.
“Ask yourself when deciding to access your investment: can you return to the market using the same unit trust and class or can you find a substitute with the same spread risk?”
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Saving for retirement
Then there is saving for retirement. Should you start saving for retirement when you receive your first paycheck? Klassen said that we now need to realize that becoming a pensioner in South Africa without saving for retirement is a risky move.
“It is important because you have to prepare for the time when you cannot generate or earn income to pay the cost of living. As a retired person in South Africa without the security of compound interest that results in a comfortable lump sum that I can expect, paid monthly through a life annuity, I have to access public health system or applying for a Sassa grant.”
Pay off expensive debt
Taking too long to pay off expensive debt is also a money mistake and Klassen says that if you don’t tighten your budget and control your spending so that you don’t have high-interest debt, you’ll die from your debt-to-income ratio.
To calculate your debt-to-income ratio, add up all your expenses and all your income. Then divide the total expenses with the total income and convert the ratio to a percentage. If it exceeds 36%, you are in financial trouble.
“If you don’t pay off the highest-interest debt first, you’ll end up with more debt than you should.”
Not buying enough insurance is also a money mistake. Klassen says the value of your assets determines how much insurance you need and your financial advisor can help you determine what you need. “Insurance should cover what is appropriate for your personal and business circumstances.”
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Credit reports and credit scores
Some consumers make the mistake of not monitoring your credit score and credit report.
“You are an economically active individual and as a result your credit history is determined by your financial behavior. Then the record of your behavior towards money and credit.
Klassen says you need to know about financial management or more about how much money you owe and who you owe it to.
“We really need to sit down and take the time to access the resources that are available to us, because it is very risky to act in a different way.”
Living without an investment strategy or not keeping up is another money mistake, especially if you don’t have enough money to pay your bills. Klassen says investing while you still have outstanding debt is like going for seconds when you haven’t finished eating.
“Investment strategy is a natural progression of your financial maturity. At a certain income level, you will have more income available and if you choose to spend money on frivolous ventures instead of paying off debt faster, you will not get the additional income or the amount of income you need can be used.
Even not having a will is a money mistake, even if you have little money, there is nothing to inherit. Klassen said that if you die without a will, it will put even more pressure on the person who leaves behind, even if there is nothing to inherit.