We all have different money management styles. Along the way can find ourselves making mistakes, which can cost us a lot and possibly set us back on our money saving quest. Some common mistakes that people tend to make when trying to save money are:
Not having a financial plan
A budget is the most important part in your money management. Knowing where your money is going allows you to plan properly and know what you can and cannot afford.
This allows you to find areas where you are overspending and where you need to manage the spending. To avoid this mistake, it is essential that you commit to preparing and reviewing your budget so that you can gain more control of your finances.
Not budgeting will often lead to excessive spending, as you will have no way of tracking how much you are really spending. Increases in the cost of living result in higher food prices for most South Africans. If you are not tracking and reviewing your expenses, your income may not be enough to cover your expenses which will lead you to another money saving mistake.
Living on borrowed money
This is using credit such a credit cards, loans and overdraft to pay for your bills. Always remember to have a detailed budget detailing your expenses.
It is one thing to just have a budget and not use it for its intended purpose. Therefore, always review and track your budget so that you can curb excessive spending and identify areas where you can chop and change to allow you to save money.
Not having an emergency fund
It is advisable to have saved three to six months of your income in an emergency fund, to help avoid a crisis in a cash emergency. Without one, people often use credit to solve the problem.
Should you experience this unfortunate situation, focus on paying off that short-term debt by keeping the minimum payment amount and paying a little bit extra so that you decrease the interest payable and can finish paying off the debt quicker.
Also commit to steadily starting to save towards an emergency fund to avoid similar situations happening in the future.
Saving requires discipline and commitment, therefore identify your savings plan and align it to a goal. This will help you to commit, as the end result becomes more desirable and reachable.
Not being honest with yourself about your current financial position
If you have no idea about your financial situation, or do not want to face up to your reality, it makes it even harder to plan your finances as you do not have a clear starting point.
Start by identifying and dealing with your current money savings techniques and identify areas that need more attention and work on those areas. This mostly speaks to your emotions towards money – how you handle money will determine how money works for you.
Not having a savings account
Always have an account that is for putting away the money you have saved. Without one, you will likely find yourself using those funds and not being able to trace your savings.
Consider saving using a tax-free savings account, as this allows you to grow your savings tax free throughout your lifetime, without capital gains tax.
Making your money work for you takes time and requires positive money practices Remember to not make any of these money savings mistakes so that you can get closer to saving your money and making your money work for you.
This article was first published on IOL and is written by Nelisiwe Mbara a certified financial planner at Alexander Forbes