It’s inevitable that life is full of financial choices. Not everyone is financially “aware” and there are mistakes people make that could have a really big impact on their life. This blog might help you to avoid making bad decisions that could end up costing you more.
Waiting to start a budget
Do you procrastinate when it comes to making a budget? A lot of people do. Maybe because we aren’t taught how to handle personal finances in school? If you answered yes, then it’s probably time to sit down and get your budget under control.
If you are someone who gets enjoyment out of spending money (and don’t we all?) then working out your budget is great for you because then you know exactly how much you’re free to spend on whatever you like, with no regrets, no guesswork and no sleepless nights. Have you ever seen something in a shop window or online and thought, “wow I really want that. But can I afford it? Should I? Shouldn’t I? Oh, why not…” and then regretted it two days later? This will no longer be a problem for you once you have a clear budget which includes ‘extra’s’!
And of course the long-term benefits of having a budget are incredible. Think of all the money you’ll probably save, the financial goals you may more easily be able to fund and the agreement you’ll no doubt have with your other half when making financial decisions together. That’s worth it!
Not Paying Off Credit Card Balances Every Month
This is a no-brainer but I’m going to say it anyway. Credit card debt can pile up fast. If you’re not paying off your credit cards every month…then maybe it’s time to start! The interest on credit cards can divert money from other important goals like buying a home or saving for retirement. Why would you need such an inconvenience in your life when it can be easily avoided? Budgeting can help you ensure you’re using your credit cards appropriately, which will make it easier to pay down your cards.
Neglecting Your Emergency Fund
Everybody should have one of these. Emergency funds help protect you from the unexpected but probably inevitable. You’re going to have a financial setback at some point, however big or small: it could be a few hundred pounds, or a few thousand. But it’s always better to be safe than sorry.
Some people would say you should have eight months’ to a years’ worth of expenses in an emergency fund. If you have to dip into this fund in an emergency, make it your top financial priority to replenish it again as soon as possible.
If you currently have no safety net at all then aim to get 3 months worth in place as a top priority, in some sort of instant access account with the rest somewhere you can get hold of it reasonably quickly, that will give you a better return. Talk to your financial advisor about the best way to organise this.
Buying a New Car When You Can’t Afford It
Cars (or any vehicles for that matter) are important for many people, but they can also become a worrisome financial black hole. If you are planning on buying or leasing a vehicle when you know you don’t have the money, please reconsider.
If you absolutely must have a car in order to get to work, get the kids to school or other stuff that involves needing a car, then talk to someone about all your options, and try to be practical. Yes the newest Mercedes might be what you would like – but actually you could manage with a VW Polo. Is it a want or a need? (The examples in this blog in no way reflect any endorsements or denigration of any specific car. Everybody’s car needs and preferences vary!)
Ignoring Your Insurance Options
If you were to die right now, (depressing thought, but bear with me) would your family be financially OK? If not: you need to think about life insurance.
And, that’s just one example. There are a number of important insurance policies you should consider putting in place: disability insurance, perhaps long-term care insurance if you’re over 60 years old, key man / Director insurance if you run a business maybe even umbrella insurance.
Insurance protects you from financial liability you wouldn’t be able to cover with your emergency fund alone. Don’t neglect it. It’s surprising how many people do.
So overall – thinking before doing is always a good idea and smarter financial choices lead to a better, brighter future. Even taking on just a few of these tips will make a difference in your life. Take a sit down and look at which of these things you need to work on next, and get straight to it! You can thank me later.
By Carole Fossey, MAC Financial