A new year is upon us, along with opportunities and new beginnings! It is the perfect time to make big changes in your financial habits too. Because no matter how much you make from your job, some tweaks in how you handle your money can go a long way to improving your finances.
A good way to improve your financial habits is to work backwards from your typical missteps. Many New Year resolutions involve the correcting of negative behavior and improving your personal spending habits. Here we go over common financial mistakes that should be improved in the next twelve months.
1. Living beyond your means
A majority of common money mistakes can be traced back to one simple issue: living beyond your means. Take a long hard look at what you can and can’t afford in the long run. Be more critical about how much your needs weigh against your wants, whether in terms of home expenses or grocery shopping - the necessities against the pleasures. By being honest about your spending habits, you can set firmer boundaries and more specific financial goals for yourself.
2. Comparing yourself to others
The "keeping up with the Jones's” mentality is a fast-track way to waste money and time. Insecurity or peer pressure can drive you to make out-of-character purchases, all for the sake of keeping up appearances. Instead, focus on what works best for you, and remember that other people could be repeating the same financial mistakes you are trying to avoid.
3. “Budget? What budget?”
Short-term thinking is the downfall of many when it comes to money. You can be living paycheck to paycheck without a well-planned budget, and nothing left over for the future. Do an inventory of your bills, debts, and other expenses. Afterwards, divide your income toward fulfilling these financial obligations, prioritising urgent payments that are time-sensitive where necessary.
4. Leaving impulsive purchases unchecked
Yes, this applies to those seemingly small and negligible purchases you make every time you’re at the mall (or those tempting candy bars at the cashiers). Even if all your spur-of-the-moment buys run cheap, making a habit of giving in to your impulses will have a huge impact on your finances over time.
5. Borrowing too much money
Avoid racking up a huge debt as much as you can. Resist the urge to borrow even the smallest sums of money, it doesn't matter if you are confident in your ability to pay it back. Living completely independent of help from others puts you in the mindset of thinking smarter about where your money goes. If you must borrow money, stick to personal loans and bank loans with ample documentation.
Never go to a loan shark!.
6. Lending too much money
On the flip-side of the debt question, almost everybody has that one friend or relative who always borrows money without repaying. As harsh as it sounds, sometimes you have to exercise a little tough love by saying “no.” This is doubly important when your own finances are in a precarious position.
7. Missing Credit Card Payments
We have made a big deal in the past about the importance of a good credit score, and settling all of your monthly credit card bills on time is a tried-and-tested way to uphold that goal. Start small by never (ever!) missing a deadline. Make it a goal to pay more than the minimum amount in the succeeding months. Having a bad credit score may cause you to miss out on a better credit card offer. It would be wise to compare credit card rates, annual fees, and features to find one that best suits your spending habits.
8. “Pay first, ask questions later”
Whether you are doling out cash for bank fees or car insurance, you should always make an effort to understand exactly what it is you’re paying for. Read contracts before you sign them, and don’t hesitate to ask questions. Consult with other financially-savvy people when you are unsure too.
9. Monthly money sinks
Downsizing your luxuries is one way to beef up your finances for the long term. Make a list of your regular monthly expenses and take note of the services you use more frequently than others. Utilities like water and electricity are no-brainers, but you might have second thoughts about paying for premium cable TV or making installment payments on the latest trendy gadget.
10. Having nothing saved up for emergencies
The “rainy day fund” is quite possibly the most useful fund ever. Many tend to underestimate the importance of keeping one until it’s too late. Should you suddenly lose your job or incur huge medical expenses, you should have enough money set aside to support yourself (and your dependents) for at least three months.
Make it a habit to set aside a minimum of 10% of your income monthly - better if you can save higher!
11. Overlooking taxes
Making allowances in your budget to include taxes can save you a lot of headaches when planning your finances. Be aware of tax deductions, rebates, or exemptions that can be applicable to your current situation. If your job automatically deducts taxes from your salary, get in touch with your accounting department to ask about exactly what the deductions pay for.
Don't forget to also apply for tax reliefs at the start of a new year! Find out what reliefs are there from Lembaga Hasil Dalam Negara - Tax Relief.
12. Never checking credit reports
Some countries have dedicated agencies that give you detailed summaries of your credit history, including late payments on your credit card. Make it a habit to check your credit report every year - at least - and do research on what warning signs you need to look out for.
Generally, there are two types of credit reports: A free one that is simpler, and a paid one that is more elaborate. Do check with the credit agencies to understand what you will get.
13. Foregoing insurance
In addition to the "rainy day fund", a good insurance policy – whether it’s health insurance, car insurance, or your other personal effects – can also serve as an effective safety net for your finances. Once you’ve worked out your monthly disposable income, look up insurance policies with affordable rates, comprehensive benefits and reliable service.
Make sure you fully understand what the insurance plan covers and what it doesn't. After speaking with an insurance agent, consult your friends and family too. Their experiences can help you decide.
14. Not thinking about retirement
Young twenty-somethings may think that it is too soon to worry about saving up for retirement. Problem is, putting off retirement plans for too long could lead to you still not having anything saved up decades down the line. Apply the same mindset to retirement as you would saving up for emergencies, with the key difference being that retirement is more of an active investment in your future.
There are many ways you can prepare for retirement: Invest your money in a Private Retirement Scheme, investing your money, or even increasing your EPF contributions.
15. Never-ending excuses
Naturally, it’s not enough for you to be aware of your bad financial habits; you have to take action and work on correcting them. Resist the urge to procrastinate and make excuses for not fixing your bad habits. This applies not only to your finances, but also to other areas of your life that need improving.
Over the course of the New Year, you’re still likely to make a few mistakes with your money along the way. And that’s perfectly okay!
As long as you learn from your mistakes (especially the big ones), you should be able to give your finances enough time to recover.
Ready to take the next step in fixing your finances? Use our free comparison tool on our site to find the best personal loan that suits your needs, the best credit card for cashback, rewards, air miles or best deals And while you’re here, check out more helpful articles on the CompareHero blog!