If your finances take a bit of a knock, it’s time to start a fresh. Get your finances back on track by avoiding these common financial mistakes that people make.
1. Doing it alone
Financial education is important, and a good financial adviser should be able to help you plan your finances.
“They will discuss your needs and goals and help you put together a financial plan. They can also recommend financial solutions to help you to achieve your goals. It is important to ask them about planning for life’s ‘what ifs’. Make sure you have short-term insurance to cover any accidents or mishaps with your car, home or valuables,” says Old Mutual’s Karabo Ramookho.
2. Not budgeting
Without a budget, you run the risk of overspending.
“Plan your finances and stick to that in order to avoid nasty surprises,” says analyst Wendy Makhado of Mazi Asset Management. Many banking apps have budgeting or money-tracking tools to help you rein in your spending.
“For example, there is 22seven,a free budgeting app by Old Mutual. This lets you see where your money is going, so you can cut waste, and put more money towards the things that really matter to you,” says Ramookho.
3. How to plan for a financial crisis not planning ahead
Good money management starts with a good plan.
“The pandemic has left many of us realising that we are ill-prepared financially. Make sure you plan and have a clear long-term vision,” says Old Mutual’s John Manyike.
Save for emergencies, build up a nest egg, and invest for your future.
4. Not addressing debt
If you already have debt and are struggling with payments, make sure you don’t ignore them.
“The biggest mistake you can make is to be in denial about your dire financial situation. Address the matter before it becomes a problem. If it is already a problem, don’t ignore it, hoping it will disappear – it won’t. Avoiding your creditor’s calls won’t help. If you get a letter of demand, do something about it immediately. But know your rights – the law says no debt collector is allowed to threaten, intimidate or use force against you (the debtor). If they do, you can report them. The National Credit Act protects your rights and all creditors have to adhere to it,” says Ramookho.
You can also negotiate with your creditors.
“Explain that you are unable to pay the account in full, but if they are willing and you are able to, you will pay a reduced amount. It is important that you don’t overcommit yourself with your repayment plan,” advises Ramookho.
5. Disinvestment or withdrawal of funds
Withdrawal of pension funds or disinvesting your money may seem a quick way to get cash, but it’s never a good idea, as it takes away money from your future.
“Don’t be tempted to disinvest because of panic. Markets are generally volatile during uncertain times, but will self-correct over time. And, if you happen to resign or are retrenched from your job during this time, avoid the temptation to cash out your retirement savings. Preserve it – don’t borrow from your future,” says Ramookho.
6. Not having another income
The certain way to make your money grow is to bring in more money. If you have a full-time job, aside hustle could be one way you could do it.
“Increasing income may not be as easy for many, but if there is a craft that you can do and it can generate income, have a go at it,” says Makhado.
Think about what you’re passionate about– it could be fashion or farming. Your passion project could bring you joy and supplement your income at the same time.
7. Not adjusting your expenses
The two most important things to do first, when looking to rebuild your finances, are to reduce expenditure and to increase the money coming in.
“Do this by cutting out non-essential spending such as eating out and money-based entertainment, re-negotiate your insurance, downgrade some of your higher expenses and, most importantly, pay your future self by investing for the long-term, and saving,” says Makhado.
