4 Money Mistakes That Are Scarier Than Halloween
Halloween is the time when people dress up in scary costumes, and when horror movies are played repeatedly on TV and cinemas.
However, what are even scarier are the financial mistakes you might be making now – some of which can haunt you for years to come. Everyone has made some kind of money mistakes before in their lives. After all, we all learn better from mistakes — where the lessons learnt are ingrained into us forever.
Saving too much, saving too little, not saving at all, or not investing your savings, mismanagement of money resulting in instant noodles every month-end — and the worst of them all, incurring insurmountable debts!
However, even if we’ve already erred, we can still turn things around. Here are some of the most ghastly money mistakes you can make, or may already be making, and how to fix them:
1. Living pay cheque to pay cheque
As a fresh graduate stepping into the workforce for the first time, it can be exhilarating to receive your first pay cheque. According to a survey by a local job portal, fresh graduates in Philippines earn an average starting salary of ₱20,000. If one is living in the urban area with no family support, that starting salary can be stretched pretty thin.
Personal finance experts often give the advice: “Pay yourself first.” What this means is, you set aside a percentage of your income for yourself first, before paying for your other commitments (read: bills). If you decide to pay yourself 25% of your income every month, this money is not to be used for your daily expenses, but as your savings. The rest of the 75% is for your bills and your expenses.
This will help you avoid over extending your finances, if your expenses exceed the 75%, you are spending beyond your means. This will also help you manage lifestyle inflation better, because regardless of how inflated your lifestyle has become, you will still be saving the same 25% every month!
2. Accepting and using a credit card you couldn’t pay for
Getting a credit card can help you save some cash or get rewarded for the expenses that you are already spending on anyway. That is the right way to view a credit card.
However, once you start using your credit card as a way to purchase items that you cannot afford, you are heading for a major financial meltdown that will make The Exorcist seems like a romantic comedy.
It is fine to purchase big ticket items on the credit card but if you put everything big on it, you are going to rack up a lot of debt (very quickly!).
Most people, even those earning more than ₱20,000 fall into the infamous credit card debt pit. Remember, regardless of how attractive the cashback or reward seem to be, it will be meaningless if you miss your credit card payment, due to the steep credit card interest rate.
Missing a payment can lead to your balance snowballing to an amount that is no longer manageable. Try to pay your credit cards off every month. If you already have a credit card balance and is struggling to pay it off, consider balance transfer.
3. Ignoring snowballing bills
Humans are pre-conditioned to ignore nasty or unhappy things. Some prefer to bury their heads in the sand when it comes to debts. This is one of the most dangerous mistakes you can make with your finances.
Some debts can easily spiral out of control like unsecured loans, such as credit card and personal loan.
Most people take up loans with the confidence to make the repayment, however, sometimes things don’t go according to plan.
Even when the debt seems insurmountable, it is not impossible to tackle. Devise a strategy to clear your debt and stick to it. Even with a ₱50,000 debt, you can clear it off in no time, with discipline and determination.
4. Taking up too many loans
Most people consider a loan and its repayment on its own instead of looking at the big picture. Paying ₱10,000 a month for a new car may seem like nothing, but with your existing commitments such as household bills, rent or home loan repayment, this can eat up a big chunk off your disposable income.
Do your sums and quantify your borrowing capacity based on your current income and expenses. Do not borrow based on an expected future income, as things might not turn out as expected. Keep track of how much interest you are paying for your existing loans and prioritize paying off the loans either with the debt snowball or snowflake method. You can also restructure your loans and most importantly, stop borrowing more money until you get your current loans under control.