Financial Mistakes To Avoid

From time to time, we will all make some financial mistakes. What is more important than making such mistakes is learning from them. Here are some of the more common financial mistakes we should try to avoid.
Not having a financial plan: Apart from maybe winning the lottery, or inheriting a fortune, financial success doesn’t just happen. Most people live from day to day adopting a “spend as you go” lifestyle with no clear plan in place to save for specific future events or protect their families from unforeseen circumstances.
Are there big financial decisions you need to make, like buying a house or a car, paying your children’s school fees? You can’t just sit back and expect things to fall into place. Even though you can’t predict the future, you can be better prepared for it if you plan ahead.

One of the worst mistakes you can make is not paying back money that you owe; this might be a large financial loan or a small personal loan from a relative or friend. Ideally you should not get into the habit of borrowing without a clear plan to repay, but worse still is getting into the habit of not paying it back on time or even at all. Eventually it all comes back to haunt you as you will quickly lose your credibility as well as your friendships. No one will want to lend you money even if it is just to tide you over a difficult patch.
Don’t invest in what you don’t understand. What works for one person may not work for another as each person’s risk profile, goals, and circumstances, differ. Putting your money in investment vehicles that you do not understand or getting involved in some of those “get-rich-quick” scams can have devastating consequences. Try to make financial decisions based on adequate research and advice from experienced and tested professionals.
Even if you lost money in the stockmarket, it is a big mistake to ignore it completely. With many blue chip stocks still selling at considerable discounts, it is an ideal time to invest. If you have been scared away from the markets, at least consider buying into a mutual fund; this way your portfolio would be more diversified than buying individual stocks and this reduces your risk. Remember to consider your risk appetite, your time horizon and your goals before investing.
Not having adequate insurance in place can have a devastating effect on your finances. Accidents do happen. Nobody wants to be left paying expensive hospital bills or witnessing a family unable to make ends meet because of the untimely death of its primary breadwinner. Make sure your health insurance is up to date and that you have adequate life insurance particularly if you are the bread-winner of a young family. Don’t let any of these policies lapse, as the consequences can be grave for you and your family.
Yet the simple payment of the annual premium could protect you from many risks. Is your home properly insured for burglary, fire or flood? The recent floods in Lagos should be a stark reminder of how vulnerable we all are.
Don’t borrowing to buy an asset that you really cannot afford: Thousands of new cars are sold each year, but very few buyers can actually afford to pay cash for them. Remember that by borrowing money to buy a car, you are paying interest on an asset that starts to lose value from the moment you leave the car showroom.
Of course there is a thrill in getting behind the driver’s seat of your brand new car and inhaling the new car smell, but have you considered the costs to register, insure, fuel and maintain it? Many people have no choice but to take out a loan to buy a car.
Similarly, it is great to have masses of space but naturally a large house requires significant expense in terms of maintenance and utilities. Identify a property that is less than what the bank says you can afford to ensure that your payments are manageable.
Trying to live someone else’s lifestyle is a big mistake. Many young people feel entitled to move straight into a perfect apartment in the best part of town. Such a lifestyle is built through the dint of several years of hard work and diligent saving and investing. Keeping up with the Jones’, or with your own parents who have worked and earned for decades can be most damaging for your future financial security.
Don’t put money above everything else. While most people don’t do enough towards achieving financial success, there are others whose priorities have become so warped that money takes the first position in their lives. Remember that money is simply a tool, a means to an end and should never be considered the end in itself.