Je Ne Regrette Rien – Don’t Repent These Top Money Mistakes
Everyone makes mistakes. But money missteps, banking blunders and lending laments can be costly and take years to rectify. Britain is in the midst of economic turmoil with future job losses seemingly inevitable and less household income likely to affect millions as a result of the COVID-19 pandemic.
People of all ages are going to find the financial going tough for some time. Young people starting out can be particularly vulnerable to making poor financial decisions, ones that will affect them in the long term. Learning from your mistakes is one of life’s lessons. But it’s crucial not to allow a setback to become a catastrophe. It’s never too late to recognise and avoid the following common money regrets. And that is a lore which applies to all generations.
Learn from the regrets of others
Involving older peers in financial interventions can be beneficial. In particular, those who have already learned that the current decisions you might consider making might turn out badly. As you get older, it gets harder to rectify mistakes or to take action to rectify them. Even small decisions can have big implications and snowball if they are not addressed.
It can be all too easy to think parents don’t understand the lives of younger people. Or it can be the case that talking about money is just something boring that only oldies need worry about. But reflecting on the pitfalls that others have faced as they made their way through life, or even those that your younger self experienced, is one of the best ways to prevent them from happening again. After all, learning from our elders is one of the fundamental ways that humans make their way in the world.
Everyday bad decisions can quickly spiral out of control
If you’re on a low income, juggling family life with working long hours, are too tired to take a proper look at your bank balance or you’re simply prone to putting things off for another day, your financial problems can quickly compound to become a complex mess.
Amid the coronavirus pandemic, life’s worries have increased for millions of people. It is reported that over 70% of Brits have experienced anxiety about how to pay their mortgage, rent, utility bills and other living expenses during the COVID-19 crisis.
We all understand that ignoring bills, debts, reminders and potential formal action will only make the situation worse. But with so much else to concern us, it’s completely understandable that many will be tempted to bury their heads in the sand.
Poor mental health, shame and embarrassment only exacerbate the problem. Stuffing the letters that come through the door or ignoring the emails that may be mounting up can easily feel like the easiest option in that moment. So too can taking the view that things will get better one day or that a brighter future will dawn all by itself.
Spending on credit cards, borrowing from friends and family, taking out a payday loan for more than you really need or even simply splashing out on a few treats to make yourself feel better are all signs that things may already be spiralling out of control. Problems can only be averted by putting the brakes on and taking some steps early in the cycle to prevent a crisis.
Do draw up a budget – it will be the best thing you do today
Budgeting is an obvious first step to taking back some control and restoring some balance. It doesn’t need to be complicated – just a simple clear plan to live within your means and begin to deal with financial problems.
Spending habits have changed for many during the pandemic. You may even find there are things you don’t spend so much on at the moment – like transport or lunch at the office – it may be that adding these up means you have can free up some cash to deal with other things.
Don’t allow debts to go to collections
If you do fail to make payments, you’re already on the road to waving future credit goodbye. Even one or two defaulted payments can see your credit score drop by over 100 points.
At this point, it will take seven years for the entry to drop off your file. Higher interest rates and declined applications quickly become an inevitable reality. Speak to lenders. You may be surprised that most will actually take a more sympathetic view given the coronavirus pandemic and the economic climate to come.
Save for outlays rather than financing them
It’s all too easy – and tempting – to accept an appealingly low (or zero) interest finance option. But taking out too much will only eat into a chunk of your monthly income, regardless of the APR.
Buying an expensive car is one of the most common forms of this mistake. Most of us need a vehicle to get about, drop the kids off at school and get to work. But experts reckon that car repayments shouldn’t come to more than 10% of your monthly income. Any more than that and you should reign in your vehicle expectations.
If you borrow more than you can afford on car finance and then add home improvement loans, credit for furniture, and for appliances and expensive entertainment systems, and it’s not unusual for someone to be paying out hundreds of pounds every month before they start on everything else they need to pay out.
Avoid buying too much house
For anyone, at any stage of life, the intent when purchasing a house is usually to stay there for a long time. We’re almost led to believe that buying the “forever house” is an ambition we should all aim for.
But this isn’t always the case. The saying “spam city” refers to those who have bought a big house but then can barely afford to live in it – the idiom being that excessive mortgage repayments mean that they then have to resort to living solely on the cheap tinned meat of old.
There is a general rule which says you shouldn’t fork out more than 28% of your monthly income on mortgage repayments. That is the figure which you earn minus taxes, debt payments and other expenses.
Not saving enough for retirement or withdrawing it early
Retirement may be many years away. But regardless of your stage in life, saving is the only way to live out those future golden years in comfort.
You can’t make up for your savings digressions earlier in life. But you can try to increase the amount that goes in right now. That may even more important for those who fear for their jobs in the short term or in the eventual post-pandemic world.
For those with several years left in employment, increasing the amount that goes to retirement can make a big difference. And for younger people, starting doing so early makes perfect sense.
Some people are tempted to see their retirement accounts as money they can tap into when they want some extra cash – as if it’s free funds to draw down on – but that’s a bad way to look at it.
Depending on the type of retirement scheme you have, you may need to pay penalties and income tax on the amount you withdraw. One of the main advantages of pension plans is that they allow your money to compound and build up to a much larger pot. If you were to choose to withdraw the money, you’d actually find later down the line that you’d taken a big step backwards.
Don’t let one mistake become the springboard to ruin your finances
Not every financial mistake is a big deal, but of course, some have serious repercussions that affect you for years. It’s important to know what these mistakes are so you don’t make them again and end up regretting it later.
Practice money mindfulness
Especially in the current environment, promoting your mental wellbeing has never been so important.
That may mean you work out just how much you can afford to spend on activities that bring you pleasure and the opportunity to relax. It doesn’t have to be an expensive outlay. It may simply be a weekly yoga class or the opportunity to continue pursuing your hobbies.
Remember to look after yourself as stress and anxiety are often exacerbated by working longer hours to raise additional income or frantically looking for another job.
Putting too much pressure on your shoulders will only make a tricky situation feel much worse. The current global crisis will eventually come to an end and it’s important to recognise that the world we live in just now is unprecedented yet ultimately finite.
Take the time to talk about any financial problems with a trusted family member or friend. Simply sharing worries is a good way to offload. Many don’t feel comfortable doing this because they may feel a sense of shame, but you may be surprised how many people have found themselves in the exact same position.
Another option is to discuss your situation with a financial advisor, or a charity or the Citizens Advice Bureau can help you see more clearly. Take action today to keep the worries away.« Deals for Interest-free Balance Transfer Credit Cards Are Disappearing All You Need to Know about Guarantor Loans in the Coronavirus Crisis »