Common Mistakes to Avoid When Managing Your Money

Do you find yourself wondering where all your money has gone at the end of the month? Desperate for payday to arrive? You’re not the only one. The introduction of contactless payment and fast online checkouts makes it easier than ever to spend.

Here, we look at common money mistakes people make, and how you can implement better financial management and careful budgeting into your life.

Frivolous Spending

Many of us are guilty of frivolous spending. We think that starting the day off with a £3 coffee, or impulse buying clothes that you don’t really need, isn't going to make a massive difference to our bank account. But these ‘small’ costs add up. Just think that if you cut out a £3 coffee from your daily work routine, you could save around £720 per year. That’s enough for a holiday!

Plus, cutting out unnecessary spending will help you to save a pot of cash for the future. You never know when you’ll need to dip into this. An unexpected redundancy or illness could mean you really need that extra money.

Solution: go cold turkey. Be strong and resist the urge to impulse buy. You may find it useful to set yourself a weekly budget and withdraw this in cash. Once the money’s gone, it’s gone.

Buying Low-Cost Items on Credit Cards

Credit cards have their pros. They allow you to spread the cost of large purchases, earn rewards and cashback, improve your credit score and protect your purchases from theft or damage. Yet many people get sucked into paying for essential low-cost items on their credit cards, such as their weekly food shop or petrol. The problem with this is that you could be paying high rates of interest on items that you’ve used before you’ve paid them off.

Solution: start paying for low-cost items on debit cards or with cash. If you think this will be tricky financially, then take some time to work out your disposable income. From there you can set yourself a realistic monthly budget for low-cost items.

Living Payday to Payday

A study has found that a quarter of British adults have no savings, with a third blaming this on “their monthly outgoings being so high they never have anything left over”. We are living in an era with extremely high living costs but draining your account of funds and relying on payday is risky. It puts you in a dangerous position that could lead to a financial crisis. For instance, if you encountered an unforeseen emergency like a boiler breakdown, you wouldn’t be able to cover the costs.

Solution: save as much as you can in a rainy-day fund. It is advisable to put away roughly three months’ worth of your salary. You don’t have to do this overnight, try putting away £50 per month that you might normally spend on a few drinks at the pub on a Friday night.

To put yourself in the best position to prosper financially, avoid these common money mistakes. Make saving and budgeting a priority and create a long-term plan that covers any eventuality.

This article does not necessarily reflect the opinions of the editors or management of EconoTimes.