Common money mistakes to avoid

Financial literacy gives you the necessary skills that will help you manage your money efficiently, through making sound and informed financial decisions. Nobody is immune to making some bad financial decisions. When we educate ourselves about good personal finance, we avoid having to learn everything through personal trial and error. When it comes to money management, errors can be costly. It is always better to avoid as many errors as possible opposed to going with the flow and learning through experience. This article talks about common money mistakes that we should avoid. Knowing what mistakes to avoid forms part of financial literacy education.

Not having a Credit history

Focusing too much on trying to avoid accumulating debt can lead you to neglecting building a good credit record for yourself. Not having a credit record is undoubtedly better than having a bad credit record. If that’s the case, why is not having a credit record a bad financial decision? It can interfere with financial plans that require you to have a good credit record to in order to obtain credit . If you don’t have a credit record you might still get credit but at a higher interest rate.

Some start up business owners take out personal loans to finance their businesses, with the idea of repaying the loan from the profits of the business. When the interest rates are high due to not having a credit record, it drastically lower your net profits after making the loan repayment.

Amongst other benefits, a good credit record will save you money and earn you some credit card rewards – not building a good credit record is an expensive mistake.

Can you afford it?

This question is usually answered with a quick yes or no response. The answer to this question is more complicated than we think. It is common knowledge that having the money to buy something doesn’t necessary mean that you can afford it. If you don’t take note of all your expenses or adhere to a set budget, you can’t say you know how much you can and can’t afford.

Being able to cover all your monthly commitments is good but are you always left with no money by the end of the month? Are you able to save at least 10-15% of your total income? If your answer to these two questions is no, you could be living above your means. You need money in order to reach your financial goals and to enjoy a better quality of life. You need to find ways to increase your wealth opposed to over stretching your budget.

How much can you rely on online affordability calculators? Affordability calculators should be used as guidelines and not as a definite way of checking if you can afford something. Your financial plan is unique to you and your needs no one should know what you can afford better than you. Making financial decisions solely based on affordability calculator results is not wise.

Lack of Financial goals

Long-term financial goals usually need time to come to fruition. Drawing up a long-term financial plan as early as possible allows you to see the exact time-line, and set small milestones that bring you closer to your goals. Depending on when you start generating income and how long you plan to work until retirement, you have roughly 42 years to save up for your retirement. It seems like a very long time, maybe it is, but other living expenses shrink the amount you are able to save towards retirement. If you start saving for your retirement late, you will have less money saved up by the time you retire, unless you generate a high income and you are able to put away a lot of money in a short period of time. Whatever your plan for retirement is, you need to think about it today and start planning it. Not setting financial goals leads to careless and impromptu spending.

Many believe that they would have to be accountants or possess special skills in order to properly manage their finances. Bank consultants are always available to speak to customers about any financial questions they may have. The internet is also a vital source of information. No matter how cliché it sounds; it’s not so much about how much money you have, it’s about what you do with it. If you don’t set up a plan for your future, you won’t be able to make the most of what you have. Ever wondered why some have gone from having it all to having nothing? – poor planning!

Essential personal finance skills to teach your children

Its not too early to start

It’s every parents dream to see their child grow into a self-sufficient adult. From the time a baby is conceived, the level of dependency starts to decrease until the baby is ready to live outside their mothers body. From the time of birth onwards, their level of dependency continues to decrease. The journey to adulthood has already begun!

Physical growth happens naturally but there are other stages of growth that need to be instilled by the parents, such as intellectual and socio-economical skills. In terms of social skills, when you teach your children to say please, thank you and you’re welcome while they are still young, they will most likely to grow up to be adults with proper etiquette. What about personal finance skills? Is simply telling your child that money doesn’t grow on trees enough to teach them the right attitude about money? Obviously not. The personal finance skills you can teach your child can be broken down into three categories: savings, budgeting and making sound financial decisions.

Savings

You can use a reward system to introduce money to younger children. The reward system can be incorporated with other aspects of learning, such as teaching them to complete their chores on time. If you start early, by the time they are older, they will be better equipped to handle their pocket money in a financially sound way.

The traditional piggy bank system helps your child grow their understanding on the measure of value. You can start by rewarding them with small change and so they would have to collect a few more coins in order to have more money. The longer they wait, the more money they collect, and the closer they are to reaching their target.

Impulsive buying is a symptom of poor personal finance management skills, and it can lead to some serious consequences. The piggy bank systems teaches your child to be patience, they will be less inclined to wanting instant gratification.

How would you feel about not being able to check your bank balance? You can teach your child how to record the money they put in their money box. This will take their understanding of the measure of value a step further. They will have a better understanding of what they can buy with the money they have.

You can teach them about investment by adding more money in their piggy banks weekly or monthly, provided they keep saving – without spending, until they reach their goal.

Budget

Helping your child keep track of how much money they have in their piggy bank leads to the next step: the art of budgeting! You can use any method that’s age appropriate to teach our child how to work out a simple budget i.e. comparing the money they have with the monetary value of the things they plan to spend their money on. A budget will help your child understand the importance of spending less than they have. If the total comes up as a negative they will understand that it means they don’t have the money to buy whatever it is that they want. This will motivate them to save more vigorously in order to meet their goals.

Budgeting will also help your child understand the importance of writing things down. Opposed to just knowing how much they have, yet totally oblivious to how their expenses affect their balance. The ability to track their finances will give them the control and confidence they need to further advance their skills.

Sound financial decisions

Under this category you will be helping your child understand the difference between wants and needs. Sound financial decisions have to do with focusing more on your needs. When your child insists on meeting their wants first don’t feel discouraged. It might take a while for a child to understand this because they are naturally inclined to wanting to meet their wants first before meeting their needs. The best way to teach them is by not being too quick to intervene, let them experience the repercussions of neglecting the most important things.

You will soon notice an improvement in your child’s attitude towards money. For instance, if they previously didn’t have a problem with maxing out their piggy bank, they will start leaving a small amount so they don’t always have to re-open their savings on a zero balance.

A piggy bank might not be practical anymore as they get older. You can confidently open a bank account for them knowing that you have thought them some basic skills that you will continue to build on.