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4 Money Mistakes That Are Killing Your Financial Future

It’s easy to see how it happens. Effective money management is not a skill often taught in schools, so unless your parents were really keen to pass on some financial wisdom, and taught you about budgeting early on in life, you can reach your 20s and beyond without knowing even the basics.

Some people are good at learning from their mistakes and balancing a personal budget, while others fall into bad money habits which can take a lifetime to break. Still more of us tell ourselves that we just ‘aren’t good’ with money, but the truth is that financial practices are learned and can definitely be changed with a little planning.

Here are some of the mistakes that you may be making now, and what to do to fix them.

Seeing Credit and Loans as ‘Evil’

A lot of people mistakenly believe that using a credit card, borrowing on store credit, or trying to find a guarantor loans are inherently bad. But this couldn’t be further from the truth.

The fact is, borrowing money is not bad in itself. It can give you a measure of financial freedom, allow you to make smarter purchasing decisions and help you to build a good credit rating. Credit is a tool – you just have to use it well.

Start by borrowing a small amount, on a low interest rate when you need to. Use a reminder app or automatic direct debits to ensure that the repayments are made on time and regularly. Doing this will help you build up a credit score with banks and other financiers.

Then, when it comes to a time when you really need to access finance – purchasing your first home or a car, for example, lenders will have a picture of you as a capable and trustworthy customer. This means you will be offered better rates and terms on further borrowing, and those differences can save you thousands on a big purchase.

If you have never borrowed before, then you are more of a risk to lenders, so are likely not to be offered the full amount you need, or on less favorable terms. Just avoid the pitfalls of missing payments or using other forms of credit to cover them –  make sure that you can afford comfortably to pay back what you have borrowed and include it as a fixed expense in your personal budget.

Not Automating Your Savings

Building up a financial cushion of savings is absolutely essential, but all too often good intentions fall prey to unexpected expenses, and you find yourself at the end of the month having failed to meet your savings target.

Avoid this scenario by following the simple but effective principle of ‘paying yourself first’. The worst thing you can do is rely on manual savings transfers – make it easy with a standing order from the account you get paid into to your savings account each month, exactly one day after you get paid. That way, you won’t be tempted to skip it. In fact, you probably won’t even notice.

If you prefer, there are lots of money management apps that will monitor your spending proactively, send you text alerts, and encourage you to save.

Being Too Risk-Averse With Investments

When you make investments, you need them to work hard for you. But, raised during the financial crises, many young savers are proving themselves to be overly cautious and risk-averse when it comes to their savings plans.

No one is suggesting throwing all caution to the wind, but an overly conservative savings portfolio won’t generate the returns that you need in order to make real gains. A good mix of stocks, bonds, and short-term, higher-gains investment is the key to success. Taking a long-term view is absolutely key with retirement savings that you may not need to access for decades – you can stand a little more fluctuation in order to make overall bigger gains.

Failing To Have a Budget

It’s alarming how many people have no budget to speak of. If you don’t have a budget, you don’t have control of your financial destiny, and it really is as simple as that. Plenty of people earn a decent wage but still end up living hand to mouth as they don’t live by a budget – and then when something unexpected happens, it causes them to spiral into chaos.

Setting up a simple budget isn’t hard, and you should be reviewing it each month, making adjustments, working out how much you can save. Combine this daily planning with an idea of your financial goals and what you want to achieve and why, and by when, will give you a purpose and keep you from wasting money.