There’s always some new financial advice out there to follow — save more, spend less, invest here, don’t invest there. It can be challenging to keep up and more difficult to figure out which one is worth following.
To save you the trouble, we have compiled a list of the top eight common mistakes people make in personal finance. From mindlessly spending without a budget to failing to plan for retirement, these can cost you dearly in the long run.
- Excessive and mindless spending
- Living on borrowed money
- Buying a brand new car
- Investing without understanding
- No retirement plan
- Unending monthly payments
- Not automating savings
- No emergency funds
1. Excessive and mindless spending
Excessive and mindless spending can lead to debt. When you spend without thinking about the consequences, you often end up buying things you can’t afford. It’s more likely you will get into credit card debt.
This type of spending can also lead to impulse purchases, which can add up over time and put a strain on your finances. Buy Now, Pay Later payment options are everywhere, which makes it more tempting to spend on items you don’t need.
Spending too much also prevents you from saving money for future goals, such as retirement or a child’s education. So be mindful of your purchases to avoid this mistake. Always spend within your means.
2. Living on borrowed money
It’s no wonder seven out of ten Filipinos are stressed because they struggle with debt. After all, credit is easily accessible. Almost everywhere you look, there’s an advertisement telling you that you deserve to live a better life. That you should enjoy it now and pay later.
What you don’t realize is that embracing such a lifestyle can quickly lead to financial ruin. Not only do you have to pay back the money you have borrowed, but you also have to pay interest on the loan. The interest can quickly add up, leaving you with a mountain of debt that may be difficult to repay.
Additionally, this can damage your credit score, making it difficult to qualify for loans in the future. Don’t forget to use your credit card responsibly to maintain a good credit standing. Better yet, why not pay in cash or debit card so you won’t pay for monthly payments?
3. Buying a brand new car
A brand new car is a status symbol in Filipino culture. It’s a way to show that you’re doing well financially. However, cars depreciate in value as soon as you drive them off the lot, so you’re immediately losing money.
New cars come with higher insurance premiums and interest rates on loans. If you’re not careful, you could end up upside down on your loan – owing more than your car is worth. Used cars may not have the same curb appeal, but they can be much cheaper in the long run.
You can often get a great deal on a used car that’s only a few years old, and you won’t have to worry about losing value as quickly. So next time you’re in the market for a new ride, consider a pre-owned instead of a brand new car, especially if you’re not going to use it for business.
4. Investing without understanding
There’s a lot of misinformation out there. With the internet, it’s easy to come across articles or videos that claim to have the secret to making big money through investing. With social media, it’s even easier for these false claims to spread like wildfire.
Everyone seems to be doing it, so you feel like you have to. But just because everyone else is doing it doesn’t mean it’s a good idea. It’s often a recipe for disaster. Before anything else, do your research and take the time to learn about the investment.
Only take the plunge and invest your hard-earned money if you are confident enough of what you are getting yourself into – whether short-term or long-term investments.
5. No retirement plan
This is essential for anyone who wants a comfortable life in retirement. It provides security and peace of mind, knowing you will have enough money to live on when you stop working.
However, many Filipinos do not have a retirement plan. In fact, 80% of senior citizens don’t have a retirement fund. This is often because they do not start saving early enough or do not understand its importance. Without it, you will likely end up relying on your family and SSS for financial support in your old age.
This can be a burden on your loved ones. It can also lead to financial problems later in life. You can start by creating a savings account that has high interest rate or let your money grow through dividends from your MP2 Savings.
6. Unending monthly payments
If you’re like most Filipinos, you’re probably used to making monthly payments for just about everything – your phone bill, your utility bills, your credit card bills, and so on. What’s more, many of these payments are unending – meaning that even if you pay off your outstanding balance in full, you’ll still have to make the same payment next month.
While this might not seem like a big deal initially, it can quickly add up over time. Not only will you pay more interest charges, but you’ll also have less money available each month to save or invest. So if you’re looking to get ahead financially, it’s important to break the cycle of unending monthly payments.
Pay off your debts as quickly as possible. Don’t take on any new debt you can’t afford to pay off within a few months. If you do this, you’ll free up more of your monthly income. You can set aside for savings, emergency funds, and investments.
7. Not automating savings
A lot of Filipinos make the mistake of not automating their savings. They think they can stick to their budget and save money manually. However, this is often not the case. When people manually transfer money into their monthly savings account, they are more likely to spend it.
This is because it is easy to forget to do it or to justify spending the money instead. Automating your savings ensures that you always have money in your savings account, even if you forget about it.
When you set up automatic transfers from your paycheck or bank account, you’ll never have to worry about forgetting to save. And because the money will go straight into savings, you’ll be less tempted to spend it on other things.
8. No emergency funds
Many Filipinos choose to forego an emergency fund because they would rather use that money to pay off debts, invest or save for long-term goals. However, this is a mistake because an emergency fund is important in maintaining financial stability.
Unexpected expenses can pop up at any time, and without an emergency fund, you may have to rely on credit cards or loans to cover the cost. This can put you into even more debt and make it difficult to get back on track financially.
An emergency fund gives you a buffer to help weather financial storms and keep your head above water until things improve. So if you don’t have one, start setting aside money each month to build up your emergency fund. It could be the difference between weathering a financial crisis and drowning in debt.
The bottom line
These habits put you at financial risk and limit your ability to save money. If you break free from them, you’ll be on your way to a much better financial future.
Trying to make all of these changes at once can be overwhelming, so start with one or two and then add more as you go along. Remember that every little bit counts when saving for your future.