Most financial mistakes are basic but, as our experts explain, can be corrected with a few simple steps
It happens to the best – and richest – of us. James Packer and Lachlan Murdoch: ill-advised investment. Glenn Wheatley: tax evasion. Nathan Tinkler: Bad Debt
For the rest of us with less money to play with, mistakes can be much costlier. It could be as simple as not having a budget, or a less obvious failing such as neglecting to research smarter investments.
Financial experts David Koch, Steve James, Tamia Gallego and Cath Baker say there are common-sense methods to avoiding bad financial decisions.
They combine their expertise to highlight these 10 worst money mistakes.
No emergency fund
Baker, a financial planner with Insurance Advisory Service Financial Wellbeing, says not having enough cash in case of a worst-case scenario can leave you cornered.
”Plan ahead and have something up your sleeve just in case,” she says.
”You need at least three months’ worth of your salary in the event of redundancy. It’s like having a safety net.”
Spending money unnecessarily
Splashing the cash is a common mistake that can spiral out of control if left unchecked, says financial guru and TV personality Koch.
”Living within your means is so important,” he says. ”I know it’s something your grandmother told you as a kid, but how many people put this into action?
”How many people have a budget? How many people write it down, have it in their head, and monitor it? If you see something that isn’t in your budget, you have to set a goal to get it.”
Turning a blind eye to finances
Gallego, founder of the online financial community Women in the Black, says women are particularly guilty of not paying enough attention to their finances.
”Women are very organised at managing the bookkeeping of the household, attending to small tasks such as paying the bills and keeping things up to date, but when it comes to major financial decisions, most still leave it to their husbands and turn a blind eye,” she says.
Paying minimum credit card repayments
Letting credit card bills get out of control is a huge financial blunder that could put you in debt for decades, says Teachers Mutual Bank chief executive Steve James.
”I think this is a trap many people get caught in,” he says.
”Paying just the minimum means the interest over time on some of these credit cards will take 30 to 40 years to pay off.”
Living with no clearly defined financial goals is a slow road to nowhere. The key to reaching your targets is to start defining them and setting time frames for achieving them, Gallego says. Start by cutting back on lunches and coffees bought at work. It may cost you $10 a week, but that’s $520 a year.
Not shopping around for a good deal
Many people settle for home loans or savings accounts with the big four banks without bothering to analyse the smaller lenders.
James says those consumers risk being ripped off.
”People should shop around to see if they can find better value – it’s an expensive mistake if they don’t,” he says.
Neglecting your super fund
Review your super situation and get some professional advice, Baker says. ”Don’t forget about it – take control of it, investigate it,” she says.
Koch advises setting aside 13 per cent for super, as opposed to the compulsory 9 per cent.
Not having a budget
Easily the most common money mistake, James says.
”You should really know what your fortnightly expenses are,” he says.
”Most financial institutions have calculators online, you don’t have to go to fancy financial consultants, just do it online.
”If you don’t already have a regular savings plan, start now. If not, you run the risk of not having money when you really need it.”
Buying risky stocks
Risky, less well-known stock can be tempting, but stick to quality, Koch advises. ”People buy rubbish, they invest in dodgy stocks and take risks with hare-brained investments when they should just go for quality,” he says.
”Just go for good old-fashioned quality. Over a 10-year period you would have got a better return from any of the big four banks than investing in any of their products.”
Refusing to ask for help
When you land in financial difficulties, don’t compound your problems by refusing to ask for help. James says most lenders have assistance programs to make the load lighter.
”Whether it’s too many credit cards, unexpected turns in a relationship or family situations, it happens to us all at some stage of our lives,” he says.
”The first thing to do is ring your financial provider. They have centres with credit assistance staff, not debt collectors.”