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This week I have an awesome guest post from SamJefferies, a UK personal finance blogger who writes over atMoney Nest.I love this take on hidden wealth destroyers. How many of these major money mistakes are you making?
Personal finance is the greatest topic that school never taught you. Most of us grow up simply without knowing how money really works which is why, despite our best efforts and hard work, many of just can’t seem to get financially ahead.
This inability to improve our financial situation often comes down to ten simple issues most completely disregard.
Here’s a list of ten major wealth destroyers people are making yet no one is talking about:
1. Constantly Upgrading Your Mobile Phone
Mobile phones don’t have to be upgraded every time a new one is released, the next model may perform slightly better, however, it is not a coincidence that the phone companies released the next model right after you bought the last one.
Contracts make sense at first because they allow you to pay off the cost of your phone and your phone bill over time, however, they tend to cost more than Sim-only deals because the contract phone is locked into a certain network which will probably charge more for calls, data, and texts.
Give yourself the freedom to find a better a deal by sticking to Sim-only deals and quit constantly upgrading your mobile phone!
2. Financing a Car Instead of Buying Cheap With Cash
A lot of people’s poverty woes are caused by the cost of looking good. New cars are expensive and most people will need to take out a loan in order to make a purchase on a shiny set of new wheels.
If the car only needs to get you from point A to point B, wouldn’t it be wiser to get a second-hand car that runs just as well?
The cheap jalopy may not turn heads as much however you won’t be paying interest on it every month like you would be if you financed a new one so may just find yourself smiling even more with your decision!
3. Renewing Your Car Insurance at the Last Second
One thing that every company loves is when people pay early. In fact, they love it so much that they are willing to offer lower quotes to people who pay in advance.
A great example of this is car insurance, I was shocked to find out that quotes can jump 20%+ when the start date is in the following week.
4. Making Too Many Trips to the Grocery Store
Going to the grocery store is a major part of most people’s budgets and is one area that many people overlook when it comes to finance management.
Grocery stores are designed to make you spend money on things that you don’t need by making the most superfluous items easy to spot and hiding the essential items like milk and bread far away so that you have to walk through aisles of things that you don’t need before you can get to them.
Many people end up picking up one or two items that aren’t necessary, especially when with kids. These unnecessary purchases tend to add up over time, therefore, you can reduce your expenditure on unnecessary items by planning your trips to the store in advance so that you end up making fewer trips.
Personally, I use online shopping along with a meal planner to both increase my personal time and dramatically reduce my expenses.
5. Failing to Plan Your Meals
Meal planning takes a little bit of the chaos out of your life by making important decisions in advance.
If you take the time to plan your meals in advance then you will be able to make the most out of the resources that you have. When meal planning you can make a large meal for dinner so that you can take some with you to work the next day and have it for lunch, rather than having to pay for expensive sandwiches.
Planning your meals ahead also allows you to buy in bulk which costs less (and visit the grocery store less!).
6. Not Investing
The money supply is constantly increasing which causes the value of each unit to going to be worth less and less as time goes by. This means that storing your money in a bank may give you an emergency-cushion, however, beyond a certain point (usually 3-12 months worth of expenses), there are better things to do with your money.
The solution to this problem is investing and making money work for you. Whilst many are uneasy about the risks if you take the time out to truly understand investing (such as average returns, equities vs bonds and diversification) you can massively reduce your downside whilst increasing your upside.
Furthermore, if you set it up so that the profits received are reinvested then your profits will increase at an increasing rate thanks to compound interest.
7. Being Ignorant About Your Pension
You stand to make the most of your pension not your companies pension advisor or even your IFA, therefore, you must be involved in its use and allocation. You should take an active role in finding out exactly what it is being invested in.
Equities tend to outperform other asset classes over time so if you are some years away from retirement it may be worth exploring your options fully, most pension providers offer multiple funds you can switch in or out of.
This may seem like an unnecessary hassle but compound interest accrued over several decades makes it more than worth it.
8. Incurring High Independent Financial Advisor (IFA) Fees
An IFA is a person who advises you on where to invest your money and later may even manage the on-going investment.
They typically charge an up-front fee plus fees for executing trades on your behalf or moving the money to where it will do the best work. The drawback is that these costs can ratchet up quickly and if you don’t really understand what they are investing your money in you can end up with high fees with little return.
When moving forward with an IFA, ensure you truly understand what they are investing your money in, the risks and costs involved and finally if they come with a solid recommendation.
9. Not Knowing Your Worth
Employers will pay as little as they can, however, they cannot do that if the employees know their worth. Find out what the average salary is for your position, make an honest assessment of your contribution to the company and then use that information as leverage when negotiating for a higher salary.
Most employers can’t compete with an informed employee, and all it will cost you to get a higher pay is a little bit of research. If they balk, you will be able to leave that company knowing that you can find better-paying work elsewhere.
10. Not Upskilling
Upskilling is the process of increasing your skill level and knowledge base. The world is constantly changing, therefore, the skills that you have right now may become redundant in the future.
Learning how to use spreadsheets helped many people hold on to their jobs in previous decades and now the rise of programming languages, new tools and working methods (e.g. the agile system) are helping the new generations do the same.
Keep your ear to the ground, notice upcoming trends and become an expert before your current employers realise that they need an expert.
About the author
Sam Jefferies writes for Money Nest – Helping 20-30yr olds make better financial decisions.
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