If 2021 is the year you vowed to get your finances in check, it might seem like you have a lot to learn to get you on the starting track.
We aren’t all given a good financial education growing up, or the opportunities to learn good financial literacy early on, but thankfully it’s never too late to learn.
We’ve shared lots of ideas for how to save money and how to budget, but even if you’re doing all these bits, you might be falling into some common traps.
These are some of the money mistakes to avoid on your way to reaching your financial goals, whether that’s getting out of debt, paying off your mortgage, or just saving up for a special holiday.
Being scared of investing
The best time to start investing was 20 years ago – the second-best time is now.
It’s not too late to learn how you can start making your money work for you with the magic that is compound interest: the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest.
If you’re new to investing, make sure you do lots of your own research to get a deep understanding of how it works and know that your capital is at risk, but this is one method to grow your money in a way that keeping it in the bank will never be able to do.
Ignoring your credit score
Your credit score is so important when it comes to your financial future. A good rating can be the difference between getting a mortgage and being rejected, and a great rating can get you access to the very best mortgage rates available, meaning that your repayments will be less.
It’s very important to keep an eye on this for anything that might damage your score, such as late payments.
Good ways to help up your credit score can be by borrowing and paying back monthly. You may think if you never get loans or credit this is good for your rating, but it’s actually better to borrow and show that you can pay it back.
Taking out a credit card is one of the quickest ways of building this up.
Using all the credit you’re given
That said, it can be very tempting to max out the credit you’re given when you take out a credit card – it’s in the lender’s interest to give you loads of money to have to pay back.
Don’t over borrow because this can lead to a debt snowball that you’ll find difficult to get out of.
Putting the minimum towards your pension
If your employer gives a generous pension scheme – doubling what you put in or adding on 5% – make sure you max out what they give you.
This is free money and just like investing, the sooner you do it the better it is for your future.
Raising your lifestyle to match your earnings
Live below your means! Spending less than you earn is a money mindset that will benefit you no matter what you earn.
The temptation may be there to inflate your lifestyle as your income increases over the years, but this will mean that you never actually have more money, because you’ll be using it to pay for the bigger house, the better car, and so on.
Failing to save for an emergency
If 2020 taught us anything, it’s to prepare for the unexpected. With jobs and income not being as secure as we had hoped, it’s very important to have at least three months of your salary saved somewhere you will have easy access to it if the worst should happen.
Only having one source of income
Don’t put all your eggs in one basket, because if you lose your job you could be in a tricky position.
Diversifying your income is a great way of making more money and being less at risk if your job is lost. This could be anything from delivering food in the evenings to selling services online such as copywriting or teaching a language.
You could also try earning a passive income. This is income that requires little to no effort to earn and maintain from a source other than an employer or contractor. Building something that will give you passive income will help earn you money in the background without effecting your ability to work or time to do so.
This could be money earned from a rental property, creating an app, or selling an e-book.
Thinking you know it all – or being scared to learn
Keep educating yourself and be open to lessons about money. Read books, listen to podcasts, watch videos.
Educating yourself on how money flows, how to make it work for you and investing in yourself and your knowledge is an enriching experience and can help to build your knowledge and in turn your wealth.
Don’t forget to head over to my blog, my YouTube channel and Instagram for daily money saving advice, tips and hacks for living your best life on a budget.
For more money-saving advice as well as chat about cash and alerts on deals and discounts, join Metro.co.uk’s Facebook group, Money Pot.
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