We all make money mistakes, and I am now going to fully own up to mine! In fact, making mistakes was the inspiration behind putting together this blog, so I feel gratitude for them, not regret.
The most important thing is not to be hard on yourself when you do make mistakes, because its a normal part of being human. Count the blessings you already have, dust yourself off, and start again. I’m hoping that by going through my mistakes, I’ll help you to avoid doing the same, but if I’m too late, I hope to make you feel better knowing that I’ve been there too.
Living beyond my means
Then: I made the classic mistake of thinking I had more money than I did. I would often run out of money before the end of the month, and then need to use my credit card to pay for groceries and petrol. One month I needed my credit card to pay bills. This is shameful behavior, because I was being paid more than the national average – so I SHOULD have had some money saved. I didn’t, because I mismanaged my money. Pure and simple.
Now: I budget. Its not exciting. In fact, you could argue its plain boring. Much in the same way as the “secret” to losing weight is eating healthily and exercising, budgeting is the way to keep my money in check. I use a spreadsheet to record my outgoings and to plan my spending EVERY month. I use it to track the growth of my assets and my net worth, and I use it to see how my debt is shrinking. No one became financial stable or free by overspending. So set a budget and stick to it as best as you can.
Using credit cards
Then: I used my cards like an extra source of income. I then paid off only the minimum. I passed the balance from one card to the next, incurring fees as I went. In fact, I added cards and had multiple at once. I paid for silly things on my credit card, like groceries. I even used it during my travels away, topping up my modest savings pot to do things I wanted to do.
Now: I consolidated my debts into a low cost loan with my bank, and cut up all my credit cards except one. I use it to earn points to pay for flights I will take in the future. If I use the card, the next month the bill is paid off without fail by direct debit. I kept the other credit card accounts open in order to keep the credit availability. This keeps my credit score in the “good” range. Closing credit cards would have negatively affected my credit score because the ratio of debt use to debt availability would have significantly worsened (this is known as credit utilisation). If you’re planning on any big purchases, then you’ll need to avoid doing this until after you’ve completed the transaction. The good thing is I now only pay one monthly payment which makes life so much easier. Yes it will take longer, but I’m determined to get it paid off quicker and out of my life for good!
Then: I had no savings at all. I had nothing to pay for emergencies, and nothing to pay for trips away. This made me extremely vulnerable, because at any slightest problem, I’d have to use debt to fund it. If my friends wanted to do something off the cuff. I’d use debt to fund it. I naively thought I’d pay it all off, but I never did.
Now: I have savings everywhere! I have auto-bots that make savings for me, (chip and plum) and I have separate accounts for different parts of my budget. Auto-bots for travel, a savings account for my emergency fund, and a current account for saving for big events that need more time to save into etc.
Unconscious spending (and not bringing in more money)
Then: I never thought about my spending. I would buy whatever I wanted, whenever I wanted. And if I couldn’t afford it? I’d use my credit card or overdraft. I’m talking about frivolous spending, not the kind that is necessary to make ends meet. This is not something that can be easily sorted only by setting a budget – this requires additional strategies including finding ways of bringing more money in until everything is back on track.
Now: My spending is usually planned. I sit with my spreadsheet before payday and decide how I’m going to allocate my money that month. Then I do my best to keep within the budget. When I first started, I physically withdrew the money and used envelopes to divide it up into areas like petrol, food and fun. Once this money had gone, I had to stop spending. It made me really cautious and conscious. I also do lots of overtime to boost my savings accounts and pay for the things that I want.
Then: Yep, you guessed it. Before I turned 30, I had NEVER invested (aside from my work-pension of course). This has seriously stunted the ability of my money to compound with time.
Now: I’ve started investing, and have a range of things in my portfolio, including gold, bonds and index trackers. I’ve also started speculating in cryptocurrencies. Investing is a way of making more money on my savings – if it just sat there in a normal bank account, it would LOSE value overtime with inflation.
Contrary to popular personal finance convention, I do not encourage paying off all debts and creating a good amount of savings before starting to invest. Yes, those things need to happen, but they can happen ALONGSIDE this. Investing works best with time, so that the money has a chance to compound.
Investing is not difficult to do, and you can start from as little as £25. What I would suggest though is that you THOROUGHLY research before you throw the money in, and ONLY invest what you can afford to lose.
So I hope by baring all my money mistakes, I have helped you with yours.
If you need more help, I’m always in my free Private Facebook Group to provide support and answer questions. We have regular Facebook lives too on all sorts of money topics (the videos are left up in case you’re wondering), so come on in!
Now over to you. What mistakes (if any) have you made? What will you be doing about it now?
Until next time, love