Have you ever watched a game where people get so worked up and excited and you have no idea why? The difference is that they understand what is going on, the rules of the game, and what is required to win. Rules help create a level playing field for everyone and make the game as fair as possible. When you don’t fully understand the rules but decide to play anyway, it’s highly probable that you may lose. The same is true for the lifelong game around money – if you don’t understand the money rules, you can easily find yourself stressed, in debt, and feeling out of control with your finances.
Here are three common financial mistakes to avoid so that you can play this game of money and stay on the winning financial side:
1. Leaving your savings up to chance
Our lives are increasingly busy. There’s so much that we have to take care of and remember – don’t forget to pick up the kids early today, stop on the way home and grab milk, and also send off those emails that you didn’t get to in the morning – and so on. It’s no wonder that we often drop the ball and forget things from our never-ending to-do list. That’s why you should give your mind a break from having to remember to save for your financial future – automate it instead.
Most people find it difficult to save. That’s because they make the mistake of waiting until the end of the month to see if there’s any money left over to put in a savings account. But playing the money game means paying yourself first and not leaving your savings to chance. A guaranteed way to win is to set up an automatic savings plan, whereby money is automatically transferred to your savings account and investments each time you get paid. Set it and forget it, and put building your financial future on auto-pilot.
2. Pay down the debt with the highest interest rate first (not the highest balance)
Everyone wants to get out of debt as quickly as possible. However, when making a debt repayment plan most people fall into the emotional trap of wanting to tackle the debt with the highest balance first. Although this debt may cause the most financial heartache, this approach is not money smart in the long run. Paying the highest balance debt will cost you more over time, and consequently you will remain in debt longer. Instead, focusing on the highest interest rate debt first will allow you to get out of debt quicker and pay less interest over time.
3. Be in control of your money, instead of allowing it to control you
One of the biggest financial mistakes that people encounter is not knowing where their money is going. Most people can account for major expenses like mortgage or rent, insurance, day care, cell phone, and so on; however, other expenses, such as online shopping, ordering takeout, and entertainment can cause more financial chaos. Having a money plan or budget is the key to telling your money where to go, and it allows you to maintain both financial peace and control.
Create a plan for your money by first listing all your monthly expenses. Be as accurate as possible by reviewing your past bank statements and transactions. Next, set a budget amount for each of your spending categories. Finally, action the plan. To remain on track to meet your financial goals, you should have weekly check-ins to review your spending compared to your budget, and also discuss any upcoming financial commitments. When you are in control of your finances, you are in control of your life.
Anyone can win this game called money. It’s not about how much money you have but what you do with your money. Avoid these common financial mistakes so that you can create a secure financial future.
Vanessa Bowen is a Chartered Professional Accountant (CPA) and Master Neuro-Linguistic Programming Practitioner (NLP) and the Founder of Mint Worthy, a personal finance coaching platform that helps women shift their relationship with money and take control of their finances.
Vanessa Bowen is a paid spokesperson of Sonnet Insurance.