posted in: Building Wealth

6 common money mistakes people make

Feel like you can’t quite get ahead when it comes to your financial position?

You might be falling into the trap of making some common money mistakes. Here’s how to avoid them.

But first, we always recommend speaking with a financial planner Sydney to help you identify these pitfalls and develop a tailored strategy to improve your financial health.

1. Reliance on credit cards to generate points

When signing up to a credit card that accrues points, a lot of people overestimate how much they will benefit from the points because of the risks of overspending and additional fees.

We generally see people’s monthly expenditure increase when they get a credit card because they have the false comfort of a credit limit that is often much higher than the cash they would have in their everyday transaction account.

Consumer advocacy group, Choice, estimates that the value of points ranges anywhere from half a cent to over six cents.

Once you add annual credit card fees or surcharges, as well as potential overspending the benefits can quickly be cancelled out.

Ultimately, this means that people often end up worse off.

2. Impatience

Good things come to those who wait.

Investing is about building long-term foundations rather than quick wins.

Crypto, speculative stock investing and any speculative investment with proposed short-term outcomes often carry much greater risks.

Most of us don’t have the time, capacity or knowledge to make short-term investments successful. The much sought after big windfalls usually never come.

Therefore, investing in safer asset classes such as property and blue-chip shares for the long-term is typically a better strategy.

3. Falling into the Instagram trap

Nobody’s life is perfect.

That fancy holiday you saw on your Instagram feed may look great, but for all you know that person is in serious debt.

People tend to only show their highlights, not the full picture of what’s actually going on.

Don’t spend time comparing yourself to others, it never leads to happiness and it can lead to some very poor financial decisions.

Instead, it’s better to look at your own personal circumstances and figure out how you can build wealth and focus on the things that will bring you long term happiness.

4. Not paying attention to superannuation

Paying next to zero attention to your superannuation until you near retirement is a common misstep.

This is a bad idea as you may be paying higher fees than needed or may not have the right investment strategy to suit your changing circumstances.

It’s important to take a more active approach with your superannuation, and move your superannuation to another provider if necessary.  

Impact of selecting the right investment strategy

Assumptions:

• 30 year old earning $100,000 p.a.
• 3% wage growth p.a.
• Starting balance of $75,000
• A high growth strategy to a conservative investment strategy

The below projection demonstrates the increased return an investor can make on their investment by adopting a high growth investment strategy over a conservative investment strategy.

There are a number of risks to a higher growth strategy and this might not be suitable for everyone – we recommend you obtain professional advice before making any changes to your investment strategy.

5. Taking advice from the wrong people

Everyone thinks they’re a financial expert and wants to give advice about your financial situation.

Your mum, your dad, your barrister, your cousin – they all have an opinion. However, have they built considerable wealth themselves?

They may be providing outdated or incorrect information. Although it can be tempting to blindly trust loved ones or mates, everyone’s situation is unique.

Speak to advisors who have the experience and knowledge to help you professionally with your personal situation, and have the results on the board to show for it.

6. Becoming a slave to money

Whilst creating wealth is important, don’t let money become your master.

Money serves a purpose and buys you opportunity, it is not an end in itself.

There is no point building wealth if you’re not going to use that money on something that’s important to you such as your family and creating memories.

Money won’t guarantee happiness; however, it can fund particular items or pursuits which can contribute to your happiness. Examples include holidays, increased time with family and experiences with friends.

Ultimately it’s about designing the life you want and making it happen.

Therefore, spending money on things that matter is often a good thing, as you’re investing in your own wellbeing both financially and emotionally, which is important.

This doesn’t mean you should go and overspend frivolously on absolutely everything or things you don’t need; as this will likely push you further away from your financial goals.

Although, sometimes investing in yourself can go a long way to enabling a healthy relationship with money. 

Need advice on how to avoid money mistakes and take positive action to build wealth?

Chat to the team at Montara Wealth today.