7 Money Mistakes We Always Make
The money mistakes we make are so immaterial but cumulatively they amount to big money blunders. Picture this, two hours ago, you had Kshs 500. Now you want to pay for your groceries but your wallet is empty. You ask yourself, “Where did all that money go?” This situation repeats itself so many times over and over why? Because the amounts we are talking about are too little to fuss about.
I have been caught in such situations several times. Sometimes I end up thinking that the supermarket double charged me for that big purchase I made. “Surely, it can’t all be gone in a huff”.
If you are born poor, it’s not your mistake but if you die poor, its your mistake.” – Bill Gates: Founder Microsoft & Business Magnate
Here are 7 common money mistakes we make:
1) Not Planning
Many of us are driven by deadlines because its human nature to procrastinate. Unfortunately, you may have no explicit deadlines for personal finance planning. You spend what you have at will with absolutely no guidance. After all, it is your money. This is precisely the reason you live from hand to mouth and why you work harder, hoping that your employer will notice and reward you with a pay rise.
Solution – Create a Personal Financial Plan
Today is a good day to think about your financial tomorrow. People with a financial plan worry less and save more. The financial decisions you make today impact how much money you have to fulfil your goals and desires in future. You can secure your financial future – it all starts with a plan. Creating a personal financial plan will make it easier to boost savings and control spending.
What steps can you take?
- Start by keeping track of what you earn, what you spend and where.
- Then take a sharp look at how much you spend on luxurious purchases, such as restaurant food, entertainment, expensive perfumes, clothes from high end stores and so forth. Instead of spending money on luxuries, put some of that money to work for your future by saving or investing it. The key is to make some hard decisions about ‘needs’ versus ‘wants,’ because every shilling we spend on something we don’t really need (read want) is a shilling we don’t have to save or spend on what we do need.
- Open a savings account and regularly add to it. “Pay yourself first” with a set percentage of every shilling you get going to savings. Set a realistic savings goal and remember that even Kshs 1,000 or Kshs 10,000 a week can add up over time.
- Alternatively, you can arrange with your employer to automatically transfer some of your earnings to a savings or investment account that you cannot easily access. This is very important as it will give you financial discipline and force you to work with what you have at hand.
- Consider a separate account to save for big-ticket purchases, such as a new TV or car, instead of charging them on a credit card or loan and paying the money back over a long time with a lot of interest.
- Limit the amount of money in your wallet or purse and in your current account, so you’re less likely to spend it.
- Only carry your card when you plan to use it.
- Do your best to limit your spend budget to regular living expenses, such as food, transportation and utilities. Forget spending on “wants” for now. Focus on the “needs”.
- Educate yourself! There is a lot of information on personal financial management available freely on the internet, if only you could spare even 30 minutes a day to read.
- Make sure they have proper insurance (such as life, education, health and property insurance) and then review the cover at least once a year.
At one point in time, you may have found yourself without money when it was mid-month. This misfortune has a way of bringing along unwanted friends like the landlord knocking on your door and friends and family asking you to repay their loans to you. Your option may be to ask for a salary advance from your employer. But remember that at the end of the month, your employer will deduct the advance from your salary leaving you with no option but to get back to borrowing again. The cycle starts all over again and you are forever stuck in a rat race. That’s a clear sign that you are overspending, or living beyond your means.
Solution – Frugal Living
It is time to check your expenses. For most people, especially over the short-term, the frugal approach is the key to building savings and wealth. Set aside savings and spend whatever remains without borrowing money. This means that you will have to come up with some creative ways to cut down expenses. For example:
- Instead of going to the high end salon in Lavington, you will go to the cheap one that is right outside your estate gate. Yes, the one you have never set foot in because it is below your standards;
- Instead of paying for cable TV, watch free to air channels; After all, you are always busy at work, so why pay for what you will not consume?;
- Instead of buying an expensive facial toner from an international award winning beauty and cosmetics company, you will find out that Organic Apple Cider Vinegar does the same thing at a cheaper price with more natural benefits.
- There are so many Do-it-Yourself (DIY) tutorials in the internet which can help you do some of the simple things without paying for them.
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3) Buying Using a Credit Card
Have you ever been a target by various bank salesmen trying to convince you to apply for a credit card? Some of them camp strategically at the entrance to your office so that you don’t dodge them. I remember for so many years, there was a certain bank salesman who always called me every month to let me know of the new credit card products they have, and also how my limit is now higher and so I can have access to more money.
What you don’t know are the potential risks of owning and using a credit card. Psychologically, you will be relaxed knowing that you have access to money anytime you need and therefore, you may be tempted to make that coveted impulse purchase hoping that you will repay at the end of the month. What if you are not able to repay on time?
Credit cards are laced with high interest rates and carrying an unpaid balance month-to-month on your credit card means that even more of your future earnings are going to be earmarked for debt repayment. Buying on credit encourages you to spend more than you can really afford.
Solution – Building Your Reserves / Savings
Many people end up in credit card debt because they didn’t have the cash to afford a major car repair or medical expense. They were forced to put the charge on a credit card. Also, it is important to save for the big purchases like a car, furniture, a house and so forth.
4) Falling Prey to the Persistent Salesman
I bet you have received a call from an insurance company agent or a mutual fund agent wanting to make an appointment with you to discuss a great product on offer. Your bank may have also called you to tell you about the reduction in lending interest rates and how you can top up your current loan or transfer all your loans to one basket at a reduced interest rate. Recently we have seen advertisements telling us about how we can own a home with 105% financing. You don’t have to raise a cent to own a home.
Solution – Beware
Beware! Great deals have small prints that you critically have to think about. In addition those deals that can’t wait for a little reflection or a second opinion are often disasters waiting to happen. Steer clear of people who pressure you to make decisions, promise you high investment returns, and lack the proper training and experience to help you.
5) Not Doing Your Homework
I have been a persistent culprit in not doing my homework. One time, I purchased a portable sewing machine from a shop along Biashara Street, for an amount that was seven times more than the selling price. No one forced me to buy. Infact I had a whole month to think about it. After purchasing, I did my research and I almost fainted.
Another time, I purchased an antivirus software from a shop in town thinking that the difference in pricing cannot be that great from the next shop. Seeing as curiosity got the best of me, I decided to pop into the adjacent shop to find out the price for the same product, and boy did I get the shock of my life! The antivirus, which I ascertained was original, was selling at Kshs 700 less. I did not do my homework just like many of you.
Solution – Research
To get the best deal, shop around, read reviews, and get advice from objective third parties. This will save you lots of money which you can save or invest in income generating activities.
6) Making Decisions Based On Emotions
Sometimes, your emotions are the reason for your investment failure! You’re most vulnerable to making the wrong moves financially when you feel pressure or after a major life change, for example a job loss or divorce. Maybe your investments plunged in value at the stock exchange. Or perhaps a recent divorce has you fearing that you won’t be able to afford to take care of yourself and your children. So you pour thousands of shillings into some newly hyped financial product which has promised tenfold returns.
Solution – Be Rational
Take your time and keep your emotions out of the picture. Delay making investment decisions until your emotions are stable. In addition, it is very important to do background research for the areas you want to invest in. This way, you won’t just rely on your gut feeling but also on available evidence.
7) Delaying Saving / Making Investments for Retirement
Most people say that they want to retire by their mid-50s or sooner. But in order to accomplish this goal, you need to save a reasonable chunk of your income starting sooner rather than later. The longer you wait to start saving for retirement, the harder reaching your goal will be.
Solution – Start Saving Early
Savings is the difference between what you earn and what you spend (assuming that you’re not spending more than you’re earning!). To increase your savings, you either have to work more, increase your earning power through education or job advancement, get to know a wealthy family who wants to leave its fortune to you, or spend less.
Start saving for both short-term and long-term goals, including retirement, even though that may be many years away. With your savings, you can invest in a worthwhile venture that will earn you returns and build your wealth. Alternatively, you need to invest in businesses that will last for generations to be able to comfortably retire. In other words, your money will work for you. Always keep learning about how to handle your money.
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