10 Fundamental financial mistakes

By Staff Writer

Keeping track of your personal finances can be difficult, and sometimes even the smallest mistakes can cost you dearly. We consider ten of the more fundamental financial mistakes, and offer some tips on how to avoid them. 

1. Not saving every month 

Many South Africans don’t save, which leads to a host of financial problems. Learning to save even a small amount regularly will minimise your debt and be habit-forming. 

2. Not having a “rainy-day” account

Sometimes life produces unexpected events, and they can cost a great deal more than you have at your disposal. Setting aside money for emergencies will give you peace of mind and provide a buffer for your finances. 

3. Not adding up the cost of small expenses 

Getting coffee in the morning on the way to work, or buying a snack on the way home might seem insignificant, but it all adds up. 

A daily cappuccino might cost you in the region of R28, five days a week. Over the course of a month, you would have spent roughly R575, and a whopping R6,900 within a year.

Eunice Sibiya, head of consumer education at FNB, says, “It’s also important to note what you’re spending on groceries and food for the family. Budgeting as a family will help you realise your financial goals more easily, since there’ll be a collective effort from all of the family members.” 

4. Failing to plan for the future

Planning for future expenses is of critical importance, but it’s often neglected. This might include your financial product payments, your child’s education, or servicing your debt.

Deon Nel, head of financial consulting for Standard Bank says, “Every element of a good financial plan should be considered. This includes everything from short-, medium- and long-term savings, to life cover, health cover, income protection, short-term risk insurance, and disability insurance. It may seem like a tall order but covering all the bases is a vital part of becoming wealthy.”

5. Not understanding ATM fees

We all know the frustration of finally making it to the front of a parking pay station queue, only to realise the pay point accepts cash only. You have no option but to withdraw cash at the nearest ATM, for a fee that may amount to more than the parking transaction. 

Be sure to check not only ATM fees but also transaction fees, account fees and any other services attached to your banking facility. 

If you need to carry cash, cash-at-till is often a better option as it usually attracts zero fees.

6. Signing up for housing that you can’t afford 

After an extensive search, you find a dream home, but the rent or bond is more than you expected. Nevertheless, you sign the agreement, and a few months down the line, your dream has become a nightmare. 

Make sure you know exactly how much you can afford for housing, including water and electricity, and shop the property market accordingly. 

7. Not having a budget

If you don’t have a budget, it’s difficult to know exactly how much money you can spend on necessities, or whether there’s anything available for luxuries. It’s easy to overspend and accrue debt in this situation. 

Nel advises, “Once you start making money, you need to learn how to retain and invest it so it starts working for you. You should take advantage of a financial planner at an early stage to help you achieve your goals.”

8. Forgetting about automatic deductions

Gym memberships, cell phone contracts, and insurances are among the many debit orders that you may have set up on your bank account to ensure you never miss a payment. That is, until you overspend on Christmas entertaining, your debit orders bounce, and you are hit with substantial fees.

It’s worth setting up calendar alerts to remind you to check your balance and ensure that your funds can cover your automatic payments.

9. Misunderstanding credit

Just because the bank is willing to issue a loan of R10,000, doesn’t mean you need to spend all of it at once. Whether making minimum payments and thus accruing interest, paying late or not paying at all, mismanaged credit can cause significant problems.

Taking out too many loans, unnecessarily increasing your credit limit and ruining your credit score can cause financial problems that take years to resolve.

10. Neglecting estate planning

As you build wealth, your estate may include property, cash, investments, and other assets that can add up to a good deal more than you expected. It’s important that you take care of the wealth that you have created for yourself and your family. 

Nel advises putting a will in place not only to protect your assets, but also to ensure that your family is catered for and that your wealth is distributed correctly. If you don’t have a will, your assets will devolve in terms of the laws of intestate succession.

Nel says, “Take the time to consider all of these factors and devise a plan for your assets. By doing this you will get an overview of your financial life, and have the ability to enact the actions that will help you achieve your financial goals.”

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