Along with moving house and job stress, financial struggles are one of the top reasons for excessive stress in life. We all need money to stay afloat, and managing your outgoings versus income, as well as trying to allow yourself a few of the things you want rather than just what you need all of the time is one of the most difficult challenges in day to day life.
However much money you have, you are bound to want more as your threshold for what is in your reach shifts to accommodate your budget, and a common pitfall is spending everything you have every month, leaving nothing over for savings.
Not knowing your limits and living right up to what your means allow each month is one reason so many people fall into the devastating debt cycle that can lead to severe financial troubles that can mar your life in the long term. Here we list the top 5 financial mistakes people make – and how to avoid them!
In today’s instant culture, money seems far more expendable than it used to. Think about your journey to work, you get on public transport, grab a cappuccino and a croissant, maybe pick up a paper for later on. Without thinking about it, you’ve probably already spent between £5 and £10 on items that not only did you not need, but you could easily have gotten for cheaper or even for free with a little prior thinking.
Taking breakfast to work, walking in and checking the news online may mean putting in a little more effort but over the year it will save you hundreds of pounds, without you feeling deprived. This is the same for new technologies like mobile phone upgrades, video games and mp3 players.
When they first come out they cost far more than a year down the line, and people will often buy them to stay up to date when they already have older versions of the same technology at home. If you have three old mobile phones lying around you probably don’t need another one until the price drops a bit!
Buying things you can’t afford on credit
Tying in with frivolous spending is buying expensive items on credit just because you can. Consumers often think that because they can get credit to cover a new television or expensive kitchen equipment that they can afford it. The truth is if you need to get it on credit then you can’t afford it.
Saving up for a few months with money from your pay cheque means that when you do eventually buy the item it is yours outright, and the financial burden of paying for it has already passed. If you won’t be able to afford it after a few months of saving up, then it’s probably not a purchase that you should be making in the first place!
Subscriptions and memberships
Do you have a gym membership? Most working adults do or have done at some point. And how often do you go to the gym? A large percentage of people with gym memberships go less than once a week, and at a figure of around £50-£80 per month, it would be far cheaper to pay for one off exercise classes, run in the park or take up swimming twice a week.
Similarly, if you’re paying for TV or music subscriptions that you are not using but think you might, one day, it is worth cancelling these and paying for them when you really want to use them. Subscriptions and memberships often get lost amongst your monthly spend as it is a regular payment, but it is money you don’t need to spend going out of your account for no reason, often just subscribing to a lifestyle rather than a service.
Living on borrowed money
Credit cards, overdrafts and loans all offer a quick solution to debt or financial struggles. However, these ways of obtaining cash all carry hefty interest rates, meaning although this money is yours in the immediate, in the long run not only do you need to pay this back, but you will be paying your own hard-earned cash out for the privilege.
Often it seems like a good idea to take out a credit card when it is offered to you, or take a loan out for general spending, making your bank account look healthier in the process, but these are long term commitments, and if your situation changes you may find yourself living entirely off of money that isn’t actually yours, leaving you very little of your own money for savings and legitimate spending money of your own. It can be quite a negative experience mentally to feel that you have no money of your own, so it is best to avoid overdrafts or loans as expendable cash.
Living payday to payday
It is human nature to live within our means, spending everything we earn then waiting for the next pay cheque to come through for the process to begin again. But this is a dangerous cycle as it leaves you with very little wiggle room should your situation change, and stops you having a chance to save money for expensive purchases in the future. Also, spending that close to the line of your account/overdraft can lead to you accidentally going over your limit and paying excessive and unnecessary fees every month.
Try to cut back on spending and save a little money in a high interest account every month. Payday loans can be a helpful way of staying out of your overdraft and away from longer term borrowing commitments, as long as they are used only for one-off times of financial struggle and paid off as soon as your next pay cheque comes in. In this case, a payday loan is a short term and helpful way to make sure you stay afloat and that your borrowing ends as soon as the month does. After paying the loan off, look into opening a savings account and saving a little bit of extra cash every month (even just your daily cappuccino) to keep you out of debt in future!