Over more than two decades working in the financial industry, I’ve seen many people reap the rewards from their financial decisions.
Seeking help from a professional adviser often helps people appreciate the long-term impact of their decision-making, especially during major life changes.
But it’s the smaller, daily money habits that can also really add up over time. Good habits can build wealth over time, while poor habits can have the opposite effect.
Here’s a list of some common mistakes to avoid:
- Letting ‘time-poor’ mean a poor time
Many companies count on us being too busy to seek the best deals and instead offer better rates to new customers. Ask for a better rate on your mortgage and the effort could save you thousands compared to someone who doesn’t.
- Spending more than you earn
Avoid using easily accessible credit to spend beyond your means. Know your income and expenses and stick to a realistic budget. Consistent overspending can lead to future financial problems.
- Having no emergency fund
Having an emergency fund is important because it provides a financial safety net for unexpected expenses, like unforeseen medical bills or car repairs. A good starting amount for an emergency fund might be 3 months’ salary, but everyone’s different. The important thing is that you have one.
- Not teaming up
If you and your partner aren’t aligned on your finances, it can be challenging to build wealth. In fact, poor communication around money and financial goals could be costing you a lot. To make the most of your money and the quality of life it can provide, it’s essential to work together and communicate openly, honestly and respectfully about your financial goals and spending habits.
- Ignoring the immutable force of compound interest
Say, for example, you were to invest $20,000 in a savings account or conservative investment portfolio with a 4% p.a. return. Over 40 years, you’d have $96,000. But if you took that same $20,000 and invested it in a growth portfolio returning 8% p.a., you’d have $434,000 at the end of a 40-year term. That’s more than four times as much. In short: While a percentage difference here or there may not seem like much, compound interest makes a big difference over time.
- Failing to think about downsides
Plan ahead to protect your assets. For example, insurance cover can provide a safety net against unexpected financial losses, like medical bills, property damage, or loss of income. It can also help protect valuable assets like property and cars. Knowing you’re covered in an emergency can offer peace of mind. Shop around for affordable cover that’s right for you.
- Jumping into the next big thing
Building wealth takes time and patience. Avoid falling for scams or risky financial schemes that promise higher returns than a savings account. Such offers are usually too good to be true and can lead to financial loss.
By avoiding mistakes and developing sound money habits early in life, you’ll be well on your way to financial independence.
If you need financial advice from a trusted and experienced professional, we’re here to help. Get in touch with an adviser at Align Financial (02) 9913 9995.
