Let’s face it, money management are easier for some than others. But ever wonder why it is so ? . Here are 8 common financial mistakes people tend to make with money and how to avoid them
Succumbing to Sales Pressure
How many of us out there who have issues with saying NO to a sales person ? Especially when you are being cornered into thinking you are in for a good deal. How about those “ you must buy today to get this item at 50% off, it is a once in a lifetime offer, don’t miss out” . But only for the same product to be sold the next week at 80% off RRP ?
Some of us don’t want to be seen as impolite or hurt anyone’s feeling. So what do we do? we give away our hard earned cash to people who pressure and guilt us into buying their services or products. This is particularly evident when buying a car. How many of you have been to a car dealer with a car and a budget in mind, only to come back with a totally different car and a higher loan ?
Story : One of our family member went to Holden dealership to ‘look’ at a car. They were thinking about buying a twenty thousand dollar compact car and was looking at the possibility of buying a VW Polo. But decided to have a look at Holden anyway just in case. They came out of Holden with a thirty thousand dollar Holden Cruz sedan with all the trimmings. Pretty steep for a mediocre, Asian made car.
True enough, the car kept giving them problem and the second hand value had plummeted to 2/3 the original value within 3 months.
Fix This : Learn to say NO! . Yes, saying NO will sound rude and you might hurt someones feelings in the process, etc. But there are plenty of ways to get out of this situation. A simple “Let me think about it and I will get back to you” is good. But sometimes a good sales person is not a good sales person if they don’t push hard. You can always go with ” Sounds like a good offer, but let me do my research and sleep on it”.
If they really refuse to budge, you will have to just say NO. After all, if they are crazy enough to annoy you even after you have nicely said your peace, they deserve a NO Not today, Thank you!
Fix This : If you cannot handle persistent sales person, go with a buyer or someone else who can articulate your decisions for you. This way, you can be the good cop and they can be the bad cop.
Emotionally Driven Purchases
Buyers remorse anyone ? Emotionally driven purchases comes in so many shapes and forms. The most common you see is when you purchase a stunning looking house both you and your other half fell in love with. You imagined raising a family there, cooking in a nice kitchen, lowing the lawn with your expensive lawn mower and what not.
You ended up making an offer of full asking price on that day. Failing to place reasonable terms and conditions or conducting a research and the median price on houses within the area. Only to realise once everything has gone through that you paid fifty thousand dollars too much and the house is not as crash hot as you initially thought… Sounds familiar?
Story : Ida is a travel nut and often scour around the internet looking for a great deal. She has always loved Japan and it was in one of her top 3 to go to destination. One day, Jetstar had a buy 1 free 1 offer to Japan. However at that time, Jetstar services are only from Melbourne and Sydney to Tokyo and none from Perth. Because the deal seemed too good to be true and she just wanted to go and see Japan she bought the ticket.
Her trip went from $500 for a return ticket, to $1000 , the additional $500 had to be spent on overnight hotel in Melbourne and return ticket to Melbourne.
After paying Jetstar for the ticket, she discovered that Cathay Pacific is selling a ticket flying from Perth to Tokyo for $650 return. No hassle of stopping in Melbourne and sleeping there or anything like that. Plus prices was so cheap for such a great full cost carrier. Jetstar on the other hand … well, it was a piece of s**t carrier wasn’t it ? … Did Ida regretted it? BIG time. It was the worst mistake ever!
Fix It : Always look at terms and conditions before getting any emotionally driven purchases. What are the return policy like? Would it be easy to return any of the products purchased? Is there a cooling off period ?
Fix It : As for opinions from friends and family. Just to get some perspective
Fix It : This is often one of those purchases where ‘you just gotta have it now’. Just bear in mind that, if you have to double your spending, or use up your life savings/super ..just take your time to think about what you are risking this for.
No Financial Goal
Some people go through their lives doing what they want and spending what they earn for today. They just focus on today. Some people on the other hand, go through today, always thinking about tomorrow. Either way, good for you. We don’t think there is a good way or a bad way of living , some people are just today people and some are not. Sam is a today person while Ida is a tomorrow person. However, for both situation, without a financial goal, it will be a struggle to accumulate wealth and live the life you want.
Story : One of our close friends has had a fairly successful business. He was so good at what he does and he made a lot of money. With that money, he spent 25 years of his successful career, buying things… just things. He finally retired at 70 last year, during our Christmas Party we congratulate him on his retirement and conveyed our admiration to how he will retire comfortably with all the wealth he has accumulated.
To our surprise, he noted that he actually, cannot afford retirement. He can afford staying at home and do not much, but he cannot sustain his current lifestyle with his retirement fund. This is because, he spent his whole life buying things instead of building wealth. He spends thousands on unnecessary things that had to be thrown away every year as it was mounting up at home.
Fix it: Figure out your financial goals. Short term and long term. Write it down. There is not such thing as a stupid dream. Calculate your financial goals based on; Current savings + amount in your financial goal. This way you get to see it clearly and make changes as you see fit.
Giving in to Social Pressure
In order to keep up with the Joneses, the social pressure always causes us to buy, spend and borrow more than we are comfortable with. Everything is about how what we own, or what we give to other people, determine other people’s opinion about us, which leads to our own sense of self worth. This is worse in this day and age than it has ever been.
Story : In the mining town we live in, we see labourers with very little education and skills raking in $110 k a year working as labourer in the mine site. It is the kind of money they wouldn’t dream of making in other non mining areas in Australia.
With this money comes the need to ‘show’ other what they got to prop themselves up as the ‘ cashed up – upper class’ crowd. Comes the big mortgage, big cars, expensive toys. When the mining experienced a significant downturn, plenty of these labourers ended up without jobs and had to come back to the city to seek employment. To their surprise, they had to deal with huge pay cuts (think $50 k a year), which means they could no longer afford the mortgage, the personal loans or the shiny expensive toys.
Fix It: This is hard to do, but once you set your mind on the ‘not giving a fuck’ mode, it gets better. Live beyond your means for a change. This doesn’t mean live poor, it just means that you think long and hard about stretching your dollar. Once you take a good hard look at your finances, spending and realise that none of the people who are trying to impress are going to help you when shit’s hits the fan, living beyond your means is quite manageable.
Having a budget is not about planning your life down a rabbit hole and following every single thing you put down. We realise that shit happens and circumstances changes. Having a budget lets you know how much money you have to spend without feeling guilty. Having a budgets allows you to be more conscious about spending. What we realise about budgeting is, you can be as super neat and organise with your spreadsheet and you pretty stationery; but the only thing that matters is your will power and determination in sticking to your budget; strictly.
Story: One of our co-worker decided that it is time for them to buy a house. When they spoke to a Broker, they were surprised to hear that, their decent income allows them to buy a nice , big house, the bank needed a proof that they are capable of saving. The problem is, after 12 years of being in the workforce earning good wage, at the time they approached the bank, they only had $1,700 saved. They live pay check to pay check.
When the broker sat with them to figure out how are they going to start saving over the next 6 months to show their capability as a borrower, they simply do not know how to scale back and start prioritising their expenses. They have never budgeted before, ever. If they make $1500 that week, to them, it means they have $1500 to spend. Needless to say, the subsequent 6 months was a difficult one for them.
Fix it: Create a budget, even if it is one in your head. You need to know where you money is going. Sometimes, you are being ripped off and you don’t even know it. Eg: that extra $15 a month your Telco bill charges you for Netflix you didn’t even know you had an account on. Or that financial advice AMP charged you that you didn’t know about but paid anyway (the horror right!?)
Giving Away Money for All the Wrong Reasons
We often give away money to our loved ones because you want to ensure the well being of others. Selflessly giving money to fund the new investment or businesses that you have never heard of or haven’t done any adequate research on. All these in the name of keeping the relationship. The need to sacrifice you own well being for the needs of others can impede you from achieving your financial goal
Story : One guy we know, gave his son $80,000 from his retirement fund to start a t-shirt printing business. Only for him to set up a big fancy office and spend all his time in it playing video games and not sell any t-shirts. The business folded as soon as it started. The son didn’t even bother selling any of the equipment or stocks purchased. This had left the dad heartbroken.
Fix It : Distinguish between business and family/friendship. Nothing ruins a close relationship than business or money giving gone wrong. If you feel the need to share what you have to your family, you must treat the transaction like a business. Do your research and don’t just rely on their words. After all, you are the one taking the risk, not them. If you feel like the investment is not a smart one, just say no.
Not Preparing for Divorce
Not saying that everyone should ‘anticipate’ divorce. But the reality is divorce is that time where one of you will get screwed. Sadly, that person almost often is the one worst affected by the separation. This time, this person might be in deep depression and not thinking straight. Let alone advocate his/herself during the divorce proceeding to her favour.
Some people would even wallow so far down the self pity hole. To the point that they basically gave up everything, including valuable resources that could set them up
Story : Tim and Kat have been together for 15 years when Tim came home one day and asked for a divorce. Kat didn’t see that coming and was shocked. Tim on the other hand, have spent the past 6 months preparing for this day. He had purchased a condo with a seaview for himself and his mistress. Kat on the other hand, had been a stay at home mom looking after their teenage kids who are still in school. She hasn’t held a job for 15 years and is terrified at the prospect of the divorce.
She became depressed and was too emotionally distraught to seek proper divorce representation or to even investigate what their portfolio looked like. Needless to say, the divorce outcome was not fair on her and her kids behalf.
Fix It: Divorce is hard, but it will be even harder if you are divorce and penniless! Always prepare for the worst. Never expect your ex to treat your fairly just because you had been through thick and thin together. Seek proper representative that will give you your best chance at starting over
Fix it : While there is always one person who handles the family and relationships finances, the not-so-involved-half should always take note on the family financials as much as possible. Even if you are a stay at home parent. Make sure you know where your money is coming and going.
That Grey Area Between Wants and Needs
Food, clothing, shelter – those are really, what you need . The rest are your wants, those beautiful home knick-knacks that are sitting on your beautiful buffet table collecting dust. How about your double or triple up of kitchenwares, toys, games. There’s so many marketing ploys to get unassuming people to spend their hard earn money on things they don’t need. In fact, that saying ‘Just shut up and take my money’ is the epitome of what we are trying to say and it annoys the hell out of us.
Story : Our bff spends a few hundred bucks every week on make up. Yep, its a must. Her room is full of boxes and boxes of expensive, brand new make up. Majority of the items are still in its original packaging. She always convinces herself that she needs hundreds of lipstick and eye shadow shades to look good.
Fix it : Look around your house at all the things you have in multiple amount and ask yourself if you ever needed so many of these!. With this,ask yourself whats important. It is to buy more crap you think you need or to achieve a freedom that comes from accumulating wealth.