Today I have made a list of common money mistakes you should avoid. Looking back at my financial life I have made many mistakes over the years and I am sure I will make more in the future. This list will hopefully help you to become aware of a few of the common money mistakes and maybe even avoid them.
Waiting To Invest
Having No Emergency Fund
A large percentage of people do not have an emergency fund to cover unplanned expenses. Build up a fund of 3 to 6 months of living expenses. This will save you from going into additional debt or selling assets for less than ideal prices.
Investing Too Conservatively
When investing fear can take control and cause us to be too conservative. Money sitting in a bank account earning minimal interest is actually loosing value due to inflation. An investment portfolio heavily weighted in bonds will not generate the required returns to meet your financial goals. Ensure you have the appropriate stock to bond ratio for your risk profile and required investment growth.
Not Having A Budget
Without a Budget it is difficult to track where you are spending your money. It is easy to over spend on some areas of your life and be forced to make sacrifices in others. Set financial goals and put a plan in place to ensure you achieve them.
Thinking Fees Don’t Make Much Of A Difference
What difference will 1 or 2 percent in investment fees make? Fees often seem small but with the magic of compound interest add up to a small fortune in the long run. It is often a quick phone call or small change once that will save you money each month forever. Invest in low cost index funds or low cost mutual funds.
Not Knowing How Much You Need To Save For Retirement
We all know that we should be saving money for retirement. The real question is how much and are we on track? Take some time to do the math and figure it out. Have a look at these Retirement Rules of Thumb to get a rough idea of how much you will need.
Not Taking Advantage Of Tax Efficient Investment Options
Many investors do not take advantage of tax incentives. Salary sacrificing in to retirement accounts (superannuation). Holding onto shares for 12 months to get a reduction in capital gains tax. Putting income producing assets such as bonds and REITS into non taxable accounts (IRA, ROTH, Super Fund). Find out what options are available in your country and take advantage of them.
Don’t Spend what you Don’t Have
Spending more than you make to keep up with everyone else is a fast way to get into money trouble. Live below your means and keep your financial life under control. Setup a budget that works for you.
Paying Too Much For Insurance
The chances are you are paying too much for your insurance. Be it your house or vehicles you can negotiate a better deal. Raise your premium/deductible the amount that you have to pay upfront in the event of a claim. In a way you are self insuring to get a reduction your premiums in some cases quite significant.
Making Late Payments
Many of us are forgetting to pay bills even if we have the available funds and are getting hit with late fees. What can you do about it? Contact the service providers and get the payment dates adjusted to suite. Create a calendar entry as a reminder. Opt for direct debit so you do not have the chance to forget.
Buying Stocks On A Hot Tip
Making investment decisions based on a tip from a friend or a headline in the paper is generally not a good idea. Put together a solid investment plan and asset allocation and stick to it. If you feel the need to speculate or take a larger than normal risk use a small percentage of your portfolio to do so. Less than 5% is a commonly suggested figure.
Purchasing Depreciating Assets
Spending too much money on New Cars, Toys and depreciating assets can end up costing you a lot in the long run. Consider buying reliable used cars a few years old. Pay cash for big ticket items to avoid the additional interest charges.
That concludes my list of common money mistakes you should avoid. Let me know if you have experienced any of these mistakes or have any tips to help others. Leave a comment below or contact me.