The Ten Most Common Money Mistakes

When it comes to managing our personal finances, navigating the path to financial prosperity can be as challenging as it is rewarding. Whether you’re a seasoned investor or just starting to build your financial foundation, understanding and sidestepping common money mistakes is crucial for long-term success. In this article, we delve into the most common money mistakes and shed light on the pitfalls that often befall individuals in their pursuit of financial security. By learning how to recognise and avoid these mistakes, you can empower yourself to make informed decisions, safeguard your assets, and steer clear of financial setbacks. Achieving your life goals, be they buying a home, funding your children’s education, or enjoying a comfortable retirement, becomes more attainable when armed with the knowledge to navigate the financial terrain wisely. So, let’s embark on a journey to uncover the ten most common money and plot a path to a fulfilling financial future.

1. Not Having a Budget

If you don’t have a monthly household budget, putting one in place can be a game-changer for your finances. Done right, this can provide a clear insight into your spending patterns and provide a strategic avenue for savings. Especially beneficial when striving for long-term objectives, like purchasing your first home or planning for retirement, a well-structured budget is an important cornerstone of financial planning. It not only highlights the feasibility of your savings targets but also outlines the timeline for achieving them, guiding you toward the realisation of your life goals.

2. Not Saving Enough – and Saving Too Much

Many people underestimate how much they need to save and some overestimate it. Very few people tend to get it spot on. Hoarding too much cash at the bank or building society can be a problem and will mean you miss out on much better returns from investment markets. Having too little saved (and readily accessible) could cause problems if you need the cash in an emergency. It’s a pretty good rule of thumb that 3-6 months’ expenditure is a good amount to have in accessible cash savings.

3. Not Getting Insured

Most people know that insurance is one of the most important financial products you can take out. We all have risks in our lives and insurance products help mitigate these risks and provide us with added security and protection. Many people have car insurance and a lot have pet insurance but too few people insure the most important thing – themselves. Whether it’s insuring against the risk of death, a long-term illness or losing your job, these things can derail even the most robust of financial plans unless they are insured against. Ask yourself if your family could cope financially if one of these serious events happened to you and what the repercussions may be if you don’t have adequate insurance in place.

4. Not Reviewing Your Finances

Delving into the intricacies of your finances may initially feel daunting, yet the dividends it yields often make it a worthwhile endeavour. Numerous avenues exist for saving money, from skilfully negotiating broadband fees to conscientiously seeking out the most advantageous deals. Regularly reassessing your direct debits every few months is important to safeguard you from unnecessary expenditure on subscriptions that may have outlived their utility, such as an underutilised gym membership. Taking proactive steps in managing your regular spending can lead to substantial savings and financial well-being over time. In addition to your day-to-day spending, finding time to sit down, take stock and assess the bigger picture is also important. Questions to consider may include whether you are on track to achieve your financial goals, whether are there things you could improve when it comes to your money management and whether are you taking any significant financial risks.

5. Getting Hit with Hidden Fees & Charges

From overdraft penalties to late credit card payments, unanticipated charges can erode your finances. Vigilantly tracking payment due dates and contract expirations is crucial. For instance, mortgage expiration may lead to a shift to a more expensive standard variable rate (SVR). Staying informed about such details helps in avoiding unnecessary expenses and ensures that your financial resources are optimised and you never overpay. It’s important you check these things regularly and stay on top of any fees and charges you are paying to minimise or eliminate these wherever possible.

6. Glorifying Property Investment

To some, property is the best investment. While there can be good returns to be made, there are many downsides. From taxation to fees and illiquidity, property investment has many downsides compared to tax-efficient investments like ISAs and pensions. It’s important to assess the pros and cons of property investment before diving in. Think about your circumstances, the downsides and alternatives available to you and always try to ensure your investments are as diversified as much as possible. Having all your eggs in the property basket could be a risky strategy.

7. Overspending

Overspending, particularly on seemingly inconsequential and routine purchases, can quietly snowball into a major financial mistake with far-reaching consequences. While individual instances of buying a daily cup of coffee or indulging in a weekly lunch deal may appear insignificant, their cumulative impact over time can be substantial. These seemingly harmless expenses, when unchecked, gradually erode your financial foundation. The danger lies in the tendency to underestimate the long-term effects of small, recurrent purchases, which can collectively drain financial resources that might be better allocated to savings or more substantial investments. Recognising the significance of these seemingly minor expenditures is crucial. It’s important to cultivate healthy spending habits, and ultimately safeguard your financial wellbeing.

8. Paying Too Much Tax or Missing Out on Tax relief

Navigating the tax landscape can be intricate, and there are many scenarios where you might inadvertently end up overpaying. Take, for instance, the common occurrence of being hit with emergency tax when transitioning jobs or the unnecessary tax some people pay when they fail to use their ISA allowance. When it comes to pensions, higher and additional rate Income Taxpayers, contributing to their pensions, often overlook the opportunity to reclaim additional tax relief on their contributions There are many other tax breaks available so ensuring you maximise all the relevant opportunities can be crucial to achieve your financial goals.

9. Not Thinking About Your Pension

It’s easy to overlook your workplace pension as it consistently deducts from your monthly pay. Many people use the ‘default‘ pension fund, which could be suitable, but it might result in overlooking superior pension options or embracing a risk level beyond your comfort zone. When it comes to private pensions, it’s important to review these regularly and think about the performance, charges, fund options and whether to consolidate your pensions to streamline your financial position. You also need to think about how much to contribute each month and when you plan to retire and draw an income. Leaving everything until you are about to retire is a surefire way to miss out on making the most of your pension and may mean you are unable to live your desired retirement lifestyle when the time comes.

10. Misunderstanding Investment Markets

The principle of buying low and selling high sounds straightforward at face value, but in reality, it’s almost impossible to reliably follow this rule. Many people become overconfident in rising markets, buying at the peak and then making a loss when they reduce their positions as conditions get tough. It’s important to stay invested and not try to ‘time the markets’ as it’s almost impossible to do successfully. Investing is about staying the course and remaining invested through all market conditions. Understanding that you are focused on long-term returns means you can tune out the short-term ‘noise’. This means you can ride out market fall and be confident they will recover and your money will grow.

If you would like to talk about any of the issues in this article or need more general help with your finances, please get in touch with us.

Share this article