Psssst: Not all debt is bad. Plus, everything else you need to know about this sticky subject...
How often does the thought If I just earned more money, I would stress less run through your head? If you had fewer money worries, would you sleep better at night? Yup – same. The truth: our money problems are derived from our spending habits. But you can change that if you know what you’re doing wrong. Notepads out – because Financial Advisor and Investment Specialist Adele Barnard shares some common money mistakes we make that keep us from living our best lives… and how to fix it.
1/ Not budgeting
Uggggh, the B-word… So many people think a budget has to be complicated (FYI it doesn’t). Others scribble rough calculations on random pieces of paper, never to be found again. Or they use the good old “mental budget” – the budget you have in your head – the one you think you’ll remember, says Adele.
Just like a diet, the negative connotations a budget entails and the fact that it embodies the idea of ‘restriction’ is why we avoid it. But the fact is that everyone needs a budget or spending plan. Where can you start? Personalise it! “Get the numbers going either on paper or via an app, whatever works for you. The calculator needs to talk and if it doesn’t, you have work to do,” says Adele.
How to begin? Get your three-month bank statement and scrutinise it. Start by calculating your income, then list your monthly expenses. Subtract from the income and stick to your plan, but most importantly, stop winging it.
2/ Frivolous spending
In other words, “living your best life right now” syndrome or forgetting about “future you”. Social media and media in general places immense pressure on us to constantly be having the best time, right? And we spend all our time trying to “keep up” – but keeping up comes at a cost…
“The best way to identify that cost is by scrutinising your bank statements. Identify your guilty pleasure – whether it’s shopping, dining, take-aways – and do the maths,” says Adele.
The problem with the future is that it seems so far away. It’s just so much easier to give in to instant gratification in the short term. But we need to form healthy financial habits so that we can dodge that impulse. We need to figure out our relationship with money and why we spend money the way we do.
3/ Falling into the debt trap
In addition to keeping up appearances, fancy wheels have become a status symbol in South Africa – almost a “necessity” to show you have “arrived”. But that’s actually just another glorified debt trap. “One of the best pieces of advice I have ever received goes like this: Just because you qualify for it, does not mean you should buy the car for said amount,” says Adele.
Don’t forget about credit card/retail accounts/personal loans/overdrafts etc. “Those can also sabotage you! Sometimes we get so dependent on credit and it [becomes] a vicious cycle. Interest charged makes the purchases you made just that much more expensive, so in that sense cash is king,” says Adele.
One thing 2020 has taught us is the importance of having an emergency fund: at least three times your salary saved in an account, in case of emergency, and not for a holiday or splurging on Black Friday or Cyber Monday!
4/ Not seeing the bigger picture
The idea of saving and investing sounds good, and we all want in on the action because it makes us feel good. “Always assess your finances holistically,” says Adele. “If you have debt, follow a plan of action to get rid of that first. Which is also an investment, in essence. Why? Because if you are saving and earning 7% interest hypothetically, but your credit card debt is charged at 17%, you are losing money. Be savvy!”
5/ Not having financial goals
Set financial goals for yourself. “Be clear about them,” says Adele, “as it helps to maintain focus and keep your eye on the prize, whether it’s that holiday trip, your studies, a home.” Revisit your money mistakes so you can learn from your bad choices and stop repeating them.
It all comes back to being intentional with your money and having a clear idea of what your habits and your lifestyle are before spending the money. “In short,” explains Adele, “spend less than you earn and save/invest the difference. Your future self will thank you for that.”
Disclaimer: Views and opinions expressed are Adele Barnard’s own and do not constitute any financial advice. Nor does it constitute the views of Adele’s employer.