Avoid five common money mistakes.
Identifying some of the common mistakes that can be made with money, may well help you see it in your own behaviours and encourage you to make some positive changes.
Kiwis tend to be an optimistic bunch and that optimism often applies to how we manage our money. Either that, or we bury our heads in the sand because we know that the cash-situation may not be pretty.
Overestimating their ability to manage money
A lot of people can be overconfident when it comes to money management.
You might think you have control over your finances, but struggle to answer these basic questions:
- How much savings do you have right now?
- What is your weekly/monthly budget for non-essential items?
- If anything were to happen to you tomorrow, will your household be able to manage financially?
Until these questions are answered, people really have no idea how healthy their finances are.
Not keeping track of your money
It is easy to form a habit of buying a coffee in the morning or a couple of drinks a few times a week. Before you know it, these “few small items” mean your wallet is $30 to $50 lighter!
Many people have no idea how much they spend on unplanned items.
Keeping track of your money for a few weeks can provide a lot of insight into your spending habits. There are many online tools and apps available to help so make the most of what's best for you.
And if you prefer a 'hardcopy' method, then a B5 notebook is just as effective!
Justifying 'wants' as 'needs'
Sometimes we feel the need to 'keep up with the Joneses' and have the very best of everything, which can mean spending a lot of money on frivolous things. We categorise wants as needs: “I really needed a new outfit for this event”, or “I really need a new phone. Everyone else in my group has one and their photos are so much better than mine”.
And of course we might know that we don't need any of those things, but we allow ourselves to mentally categorise them as needs, giving permission to spend that hard-earned money.
Making big money decisions without any research
It can be easy to want to support someone, or to make the most of a 'sure-bet' but often our best intentions may lead us to being the subject of any one of the many scams around.
If you're going to make a big money decision, like a new investment, or helping someone in need who you don't know well, ask questions and seek answers to ensure you're not being taken for a ride.
And that applies to spending up on an exciting new purchase – make sure you're getting the best deal in both quality, and price.
Ignoring the true cost of borrowing
Yes, it may sound like a fantastic deal when you can buy a large screen TV, interest-free for 15 months. How can you possibly not go for it?
But in the excitement of watching our favourite programmes on a flash new telly, people often forget to consider the true cost of borrowing.
Be mindful of extra costs like set-up fees, administration charges, insurance, late payment fees if it is not paid off within agreed timeframes, and interest rates when the interest free period ends.
Is the deal really that good? Make use of helpful tools, like Sorted's debt calculator1, if you want to work out how much something is truly going to cost you.
1 By clicking on this link, you will be redirected to a calculator hosted on the Sorted website. Westpac NZ and Sorted are not associated companies, and Westpac NZ does not endorse the accuracy of this calculator. You will be governed by Sorted's Terms & Conditions when using this calculator.