Financial decisions are not something that comes easily for a lot of people. Knowing the right thing to do when faced with a financial decision can be influenced by many different things, including how you were raised and the financial behaviours displayed by your folks, previous experiences you have had yourself, and the particular situation you’re in at the time. Stress, pressure, as well as the pleasure you get from making a fun purchase, can also be drivers of what you decide.
We see many different people, in many different situations but there are some mistakes that we see often that could be avoided. Let’s count down the most common financial mistakes that we as Financial Advisers, see regularly:
5. Holding cash long-term or for “a rainy day”
For those with little to no experience dealing with investing, it can look scary! What we see in the media is volatility and most of the time, worst-case scenario. So we don’t blame you for holding all your savings in cash as it seems like the safest thing to do.
However, if you’re holding onto large sums of cash over a long period of time, the biggest risk to your wealth is inflation. If you’re not earning interest greater than inflation, or reducing interest by holding it in an offset account against a mortgage, your hard-earned cash is effectively going backwards.
One way to avoid this is seeking advice on how much you should hold in cash (as sometimes it’s still appropriate!) and how much is perhaps better held elsewhere or invested for your future that’s going to achieve a better outcome.
4. Investing in new trends without knowing much about them
Yep, you know where I’m going with this one. Cryptocurrencies are the biggest thing to come out of the lunchroom of late. I’m sure you know of someone who’s about to buy a new car with the money they’ve made from investing in these assets which is great for them but you need to be careful.
Often by the time we’ve heard of the great things investments have been doing, they’ve already reached or close to their peak. Investors get confident when they see good things and that’s when they’ll put their money in. What happens soon after is that their new investment goes down resulting in a loss. Furthermore, lack of regulation and knowledge about how they work is also a consideration.
If you’re looking to invest, make sure you consider something with a long history, a benchmark for tracking returns, high levels of diversification and that’s regulated.
3. Not repaying credit cards by the end of the billing period or within the interest-free period
It’s not uncommon to apply for credit cards that offer Frequent Flyer points or deals, or temporarily use an interest-free card to make a furniture purchase. And if you’re diligent, this works out for some people by way of taking free flights, taking up free upgrades to business class or keeping their cash for longer to earn a bit of interest instead of incurring it.
But, if this is something you’re keen to do, you need to make sure you’re repaying the card in full by the end of the month or by the end of the interest-free expiry. Otherwise, you can be hit with huge interest charges with some credit cards charging up to 24% on purchases or even higher if you’ve made a cash advance. It doesn’t take long for these to get out of control.
2. Not reviewing loan products and conditions
After applying for a home loan, everything is very “set and forget.” Your repayments come out on a regular basis and you know that there are many years before the loan will be repaid. But this doesn’t mean you can’t renegotiate your loan terms, or change products or providers in the meantime if it means you’ll get a better deal!
Our tips are, to set yourself a reminder perhaps once a year to dig up your loan details and compare what you have with what your existing lender is advertising or what their competitors are offering. Don’t be afraid to contact your lender first and see if they’ll match or even beat, these offers. If that doesn’t pay off, see a mortgage broker to help out. But be careful! You don’t want to change lenders for a slightly better rate, only to be hit with regular fees. So be vigilant and compare. It may save you thousands of dollars over the life of your loan.
And why stop there? Don’t forget to compare home insurance, car insurance and even your internet provider. There are many areas where you could unlock some savings and free up that cash flow a little further.
1. Not knowing your average spend
Ever look at your tax return at the end of the year and think where on Earth did all that money go? It’s extremely common to find people who don’t have a budget or just spend what they earn without considering how much that really is. And we get it! It’s not a lot of fun going through transactions and setting spending limits.
However, there’s so much clarity that this exercise can give you. Imagine realising after a year that both you and your husband had been paying for security software when you could have been using the same one (that may have been me!). That’s a saving identified right there.
It’s easy to stick our heads in the sand on this one but knowing what your normal day-to-day spending on groceries, fuel, bills etc. can help with identifying how much you could be saving, or better yet, putting towards goals that you want to achieve at some point in the future. Once you’ve figured out what your surplus cash flow is, the next step is to figure out what to do with it!
So there you have it, our top 5 financial mistakes that we see most commonly. Hopefully this is helpful and if you think you need help navigating the world of finances, reach out to our office and schedule a meeting with one of our Advisers.
Ashleigh Thompson (BBus(FinPlan)) is an Authorised Representative of Alman Partners Pty Ltd, Australian Financial Services Licence No: 222107.
Any information provided to you was purely factual in nature. It has not been taken into account your personal objectives, situation or needs. The information is objectively ascertainable and is not intended to imply any recommendation or opinion about a financial product. This does not constitute financial product advice under the Corporations Act 2001 (Cth). It is recommended that you obtain financial product advice before making any decision on a financial product such as a decision to purchase or invest in a financial product. Please contact us if you would like to obtain financial product advice.