As the end of the year approaches, it’s essential to take time and review your spending habits. The reason for doing this is simple: get valuable insights to help set you up for a successful year ahead. And the best way to do that is to look at everything you did with your money in 2023 and ask yourself if it was worth it.
One of the key benefits of reviewing your spending habits is the opportunity to assess your financial situation and make necessary adjustments. It can help you identify all the money mistakes you committed, provide you a chance to learn from them, and prevent you from repeating them in 2024.
Questioning how you spent your money this year? Here is a list of 15 Things You Should Not Have Done With Your Money in 2023 and what you can do to avoid the same mistakes in 2024.
Read Also: 11 Worst Money Management Mistakes to Avoid
How did you finance your unexpected expenses this year? Did you dig into your savings, take a loan, or sell your belongings? If you used any of those paths, you didn’t spend your money well.
Financial emergencies are inevitable, so it is crucial to keep yourself prepared. The best way to create a buffer that prevents you from using your savings or going into debt is by building an emergency fund and investing in insurance. As a rule of thumb, you should build a rainy-day fund that can help you cover at least six months' worth of expenses.
You need an emergency fund because:
To stay financially stable now and in the long term, you must spend your monthly income wisely. When you blow all your money on living expenses, you won't be able to save, prepare for emergencies or accomplish financial goals like buying a house. The first step to ensuring that your income accounts for your current and future needs is to embrace budgeting.
Ideally, you should be able to separate your income into three categories: wants, needs, and savings. Following the 50/30/20 budget rules allows you to achieve that. This budgeting technique allows you to live within your means and ensures you pay yourself first.
Finally, you should also ensure that you are constantly increasing your income to keep up with inflation, which might cause you to spend all your money on living expenses.
Did you take time to think before making a purchase this year, or were you a slave of consumerism? One of the most significant ways you could waste money is through impulse purchases. This is because you usually buy things you don't need, and occasionally, you'll regret it later.
Impulse purchases breed a bad spending habit that can have devastating effects on your finances. It can cause you to waste money, prevent you from saving, and worse, pull you into debt.
There are only two ways to overcome impulse buying: planning your purchases and shopping wisely. Before you buy something, think about how it could help you and if you need it. Sleep on it. Wise shopping involves adopting strategies such as shopping with a list, avoiding name-brand products, and looking around for better deals.
Get-rich-quick schemes have been rising in Kenya for some time, and scammers keep coming up with elaborate, long-con games. They always seem to target two types of people: the greedy and the ignorant investors. If you are either of those people, you have likely fallen for one of their schemes and wasted money in 2023.
The most common types of get-rich-quick schemes you should avoid are pyramid schemes (also known as multilevel/network marketing), Ponzi schemes that promise high returns and no risk, and advance fee scams that ask for registration, connections fees, or handout.
To avoid falling for such scams, always do enough research, ask hard questions, and ensure any investment scheme you choose is registered and regulated by a reputable organisation.
There are three ways people spend money to impress or please people. The first group does it because of peer pressure from people around him or social media. The second group is the exhibitionists; they spend extravagantly to show off. And the third group does it to retain their place in the social pecking order.
If you fall into any of those groups, you should go back to the drawing board and rethink your financial decisions. While it might seem OK now, spending money to please people can have long-term effects on your finances. It will waste your money, prevent you from saving, and ultimately you will have to go into debt to keep up this habit.
Earlier this year, James, a 32-year- old doctor, had to go into debt after experiencing an emergency because of an avoidable mistake. His car developed a mechanical problem that needed about Ksh60,000 to fix. But James had to cash on him.
Most of his money was in treasury bonds, and, to get maximum interest on his cash, he stashed them in high-yield fixed deposit accounts. The earliest one could mature in two months. James had two options, liquidating his accounts or taking a loan. The latter was cheaper, so he took that path.
If James had kept some of his money in liquid investments, he couldn’t have found himself in that dilemma. Now he’s had to pay interest and other loan fees to be able to address his emergency. Putting all your money in illiquid investments can cost you money and cause you to miss out on some investment opportunities.
Every once in a while, family members and friends will approach you to lend them money or cosign a loan for them. When that happens, you have to make a decision. As much as you could want to be there for your loved ones, you also have to think about how your response will affect your finances.
But when involving money and family, it's crucial that you take emotions out of the equation and make rational decisions. First, you should only lend out money you are willing to lose. That means that if your loved one defaults, it won't significantly affect your finances.
When lending money to loved ones, you should also consider their ability to repay and how they plan to use it. Conduct your due diligence to ensure the risk of losing your money is low. Finally, you should have an agreement and take collateral. This reduces risk and allows you to claim your money in case of default.
Read Also: Money and Friends: How to Lend to a Friend
Ignoring your risk tolerance when investing can be a costly mistake. Risk tolerance is an individual's willingness to take on financial risks, which varies from person to person. Understanding and considering your risk tolerance before making any financial decisions is important.
Ignoring your risk tolerance can cost you in two ways. It can result in taking on too much risk, which can lead to significant losses when you exaggerate your risk tolerance. On the other hand, not taking on enough risk can result in missing out on potential growth opportunities when you are fearful and risk-averse.
Taking your risk tolerance into consideration while investing helps you choose investment strategies that align with your goals, prevent impulsive decisions, give you peace of mind, and ensure you get the best out of your money when investing.
Most people only think about fuel, insurance, and maintenance costs when buying a car. But a car comes with a lot of hidden costs. Some of these costs can run in the tens of thousands per year, and as the car ages, the costs will only increase. Some of those costs include the following: