There are some lesser-known financial mistakes to watch out for which, left unnoticed, could cause you significant problems down the track.
I’m sure you’ve heard how important it is to budget, spend less than you earn and steer clear of bad debts like credit cards. They’re the ‘big three’ that we should all be doing as a matter of course. But there are a few other financial mistakes that are so subtle you might not even realise you’re making them. Blunders that can cause you unnecessary heartache down the track.
Here are the five financial mistakes you didn’t know you were making.
1. Not having an emergency fund
A common problem these days is people being asset-rich but cash-poor. This means that in the event of an emergency, say a car breakdown or redundancy, there’s not enough cash in the bank to cover expenses.
Even if investments are running well, and savings for a holiday or house are on track, it’s crucial to have a fund set up to be able to deal with an unexpected event. Emergencies can’t be planned for, but the finances can.
2. Blindly trusting a partner
Whether it’s self-doubt, or just not caring enough, letting one partner in a relationship or business manage all the finances is a risky mistake with huge consequences. Turning a blind eye to finances could leave you strapped for cash in the event of a break up, unexpected expense or business closure.
So rather than burying your head in the sand, improve your knowledge of financial basics and go to any financial meetings with lawyers, financial planners or accountants together. It’s important both parties are equally involved in household money management. Read the fine print before signing joint documents and make those money decisions together.
3. Paying too much for health cover
When was the last time you checked your private health insurance premium? You might be surprised at how much it’s gone up. It’s worth checking what you’re covered for, and what benefits you actually use and need.
There’s no point being a healthy 25-year old covered for dentures or a retiree covered for pregnancy. Assess your situation, know what you can claim, and shop around. Any small oversight will add up over time.
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4. Failing to plan
No matter what your financial goals are, regularly review and update them. Whether it’s saving for a holiday, buying a first home, or paying off a car, set aside time each week or month to go through the finances.
Planning isn’t just a one-off activity that can be forgotten. It’s amazing how quickly situations change. Planning and going through paperwork regularly will save a lot of hassle down the track.
5. Investing too conservatively
Whether it’s buying shares or property, or choosing the investment option in your super fund, investing means putting your money to work to generate long-term returns. But a common mistake many young people make is investing their money too conservatively for their age.
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Young people have time on their side, which means they can ride out short-term market fluctuations in the hope of long-term returns.
This isn’t a cue to head to the nearest casino, or borrow way more than you can afford to repay. But when you’re young it’s a good idea to get some exposure to growth assets.
This is an edited version of a post that first appeared on www.moneymakeover.com.au
If you’re looking for more tips and guidance to manage your finances, check out our online money course hosted by David Koch today.