Financial slip-ups happen all the time and to the best of us. Many Kenyans admit to having committed not just one or two but countless money mistakes, leading to deeper financial struggles.
Money mistakes can be subjective and personal. Not one size fits all. For some, it could be those outwardly inconsequential online subscriptions or ignoring medical insurance. And yet, for others, it might be spending money they do not have, failing to track their spending, or borrowing excessively.
Generally, those common money mistakes may look so small and insignificant. However, they eventually mount into more significant and ungovernable problems. Here are some of the most common money mistakes you might be overlooking and how to avoid them.
Have you ever driven in circles with no specific destination? Financial success can become an unfulfilled dream without a purpose for your savings and investments.
The worst money mistake, more than you think, is to take your regular monthly income for granted and fail to nail down the specifics of your financial goals. Think of how you never outline how much of your monthly income goes towards debt repayment, school fees, or savings.
It may look simple, but it's a huge mistake to lack a clear and realistic financial strategy that details how much and how long to save towards emergencies or specific investments. It is easy to lose direction if your goal is to buy a developmental property within the next four years, yet, you don't quantify the amount of money required as a monthly deposit.
Setting money aside for investments or emergencies is not easy. It is even more challenging if you are on a tight income. For many young people, the question is “ why should I save now when retirement is so far away?”
But time is unforgiving, and it rushes by so fast. It could be too late when you are old and tired and do not have a sufficient safety net or retirement benefits to shield you.
Any amount of money tucked away early might have a good impact on your economic situation in the long run. Can you do the math? Suppose you invest and reinvest Ksh10,000 in the stock market at a 5% annual return. You will receive at least Ksh105,000 45 years later.
That money could have gone to unnecessary stuff, but there it is, safe and available when you need it. In logical terms, the less little bit you save now, the more you will have to save later to collect the same income.
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Many would-be investors and savers today fail because their judgments are based on how quickly a friend, family member, or Instagram influencer has achieved financial success.
Then there goes comparison - the inclination to assess your own social and personal value depending on how you compare to others.
The disadvantages of comparing oneself to others are as follows:
Remember, everyone has their own journey. Take it one step at a time.
Do you keep money secrets from your partner?
Financial experts say money secrets are never productive, especially when you are married. Financial transparency can make your goals a huge success.
However uncomfortable that regular money talk is, it helps you and your partner to be on the same page on issues such as joint savings and investments. If your relationship is founded on trust, hiding your debit card, bank statements, monthly income, debts, and savings information from your spouse would be a terrible mistake.
It would help if you were an open book on joint goals such as buying land, a dream home, or a vacation. Understanding these goals will make you and your spouse more committed to the cause.
Generally, your spouse should understand your overall relationship with money. For example, how do you feel or act when you access money? What are your spending habits? Could you be the frugal or the overspending type?
In some situations, you can't entirely avoid borrowing. A loan can be a convenient way to buy things that would otherwise take a very long time to afford. Say you want to buy a house or a car.
However, what if you merely want to fund your lifestyle expenses? To prevent this trap, follow these guidelines for prudent money borrowing:
Paying for education or downpayment for a house is sensible. But taking a loan for a vacation or wedding can cause you a long-term financial burden that may be hard to recover from.
Borrowing may not be your sole option for meeting your present financial demands. So first try all other options, such as saving for that purchase.
There isn't a standard amount to borrow since each situation is unique. However, borrow only the amount that you can comfortably repay. Scrutinize interest rates with a specific loan and determine if you can repay them without faltering.
Every debt repayment includes both the principle and the interest. Other hidden costs may apply at some financial institutions, so you should inquire about the whole cost of the loan before. Fees such as the processing fees, monthly repayments, CRB fees, etc. should all be put into consideration.
It is critical to have insurance that protects you from unexpected bills.
The first thing you should invest in once you start earning money is medical insurance. There's no reason not to buy medical insurance these days because it's easily accessible and moderately priced. In addition to medical insurance, life, and auto insurance are also very helpful.
Read Also: Money and Me: Insurance, a True Life Saver
Recognizing the financial mistakes you have made necessitates taking a step back. Keeping track of your small expenses may save you from incurring significant debt. Consider devising a strategy to get all your debts paid off to remain in good standing.
Keep in mind that it is preferable to save up for a significant purchase rather than relying only on your income to pay for every purchase. If you identify with any of the mistakes on the list above, devise a strategy to avoid them in the future and make smarter financial decisions.