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Common Personal Finance Mistakes

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Any list of ‘common personal finance mistakes’ is often all too familiar for many of us, leading many people to ask themselves why making these mistakes time and time again is a habit they find so difficult to break.

Each and every one of us is guilty of making mistakes with our personal finances, but that isn’t to say that we are unable to learn from our mistakes, turn over a new leaf, and look to the future in a much more confident and positive way.

Buying a New Car 

Some things are of course best bought new, but there are many things that can be bought second-hand and can help to alleviate the pressure spending places on your finances.

A common financial mistake that many people are guilty of is buying a new car. Yes, they look wonderful and have that inimitable new car smell, but can you really afford to buy one? Don’t forget to take into account the fact that second-hand cars are much more affordable and offer a wealth of benefits that you should know all about.

A good way to see the purchase of a new car is to understand that just because you can afford the repayments doesn’t necessarily mean that you can afford the car.

If you can afford to buy a new car outright then great, you are no doubt in a position in which buying a new car – or perhaps even a yacht – is a reality. However, when the vast majority of us purchase a new car with a loan or on finance we are simply paying interest on a depreciating asset and that isn’t a wise move at all because it increases the difference between the value of the car and what you pay for it.

Not Putting Something Away for the Future

It can be difficult to save at times, but that doesn’t mean that you shouldn’t put a little of your earnings away for a later date even though it might make things a little tight at the end of the week or month.

In comparison to other developed countries UK households save far less, which has long been a trend that the Government has taken measures – rather unsuccessfully it must be said – to rectify.

To give you an idea of just how little UK households are putting away for the future, in 2014 French households saved 15.7% of gross disposable household income, Portuguese households 11.3%, Spanish households 10.7%, and UK households a measly 3.9%.

When one takes into account just how terrible the Portuguese and Spanish economies have been in recent years it becomes instantly apparent that most UK households are in a precarious situation because they are essentially living pay check to pay check. That simply isn’t sustainable in the long-term.

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Buying a House That Is More Than You Need

It is often called ‘buying too much house’ and that is a very good way to look at things. Whilst every one of us wants to live in a comfortable home, just how much comfort do you need, and even more importantly, just how much comfort can you afford?

Borrowing to buy a home is a long-term endeavour and you have to realise that your mortgage is something that you will be budgeting for each and every week or month for the next twenty to thirty years.

This is the reality of buying a property, one that you have to get used to if you are to buy a home of your own and stand any chance of retiring comfortably in the future. However, you need to bear in mind that the difference between repaying a £250,000 mortgage and a £350,000 mortgage is a significant amount each week or month, and that you must live with these repayments for at least the following two decades.

In addition to repayments, you also need to factor in rates, taxes, maintenance and other expenses, including the extra interest incurred, all of which rise in line with the size and cost of your home. Basically, bigger, or more expensive, isn’t always better, in fact it rarely is for most households.

Overspending

Perhaps the most common personal finance mistake it is possible to make, overspending or spending frivolously is a serious mistake, one that becomes a bad habit that in turn becomes very difficult to break.

Budgeting, although extremely important, isn’t necessarily a remedy for overspending or spending frivolously as some people believe – failing to budget is another common personal financial mistake – because what is required is a drastic change in the way you think about spending.

When you get in the habit of thinking ‘one more drink or cup of coffee won’t hurt because I can spend less tomorrow’ – most of us never do – you are making excuses for your spending behaviour and the more accustomed you are to making these excuses, the less likely you will be to reign in your spending and get your finances on track. 

This is dangerous enough when your financial skies are clear and cloud free, but when they are grey and stormy it becomes even more dangerous and has tipped many people over the edge.

Going Without Insurance

So many people think ‘It won’t happen to me’ but accidents happen, people get sick and things get broken, lost or stolen, which is just reality and there is little that we can do about it – except go uninsured.

Insurance policies are an expense and they can be expensive, but failing to take out at least a basic insurance policy for your family’s health, home and possessions is a common financial mistake that you don’t want to be guilty of making – chances are you’ll pay more in the long run.

Whether you are guilty of one of these common personal financial mistakes or all of the above, there is no better time to take a long hard look at your personal finances, your spending habits and the way you view your outgoing expenditure than right now.

About the author

Peter Davis Peter Davis is a Marketing Analyst at PaydayLoan123 specialising in financial products. Peter writes most of our articles as he stays up to date with the latest information. He enjoys most sports, particularly playing football and watching his favourite football team. Peter really like his food too as we have all witnessed first hand!

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