10 Most Common Money Mistakes

I got this from the forum where I usually hang out. I just want to share it to you.

10 most common money mistakes

By Ma. Salve Duplito
INQUIRER.net
First Posted 01:10:00 12/01/2008

WHAT money mistakes can turn P20,000 to waste in a year?

While mistakes are normal (even so-called experts make them), it won't hurt to know which ones you are committing and how to learn from them.

Putting your act together financially may prove especially useful when times are tough and rocky because even little mistakes that happen again and again can set you back thousands of pesos in a year.

Here are 10 money mistakes most of us make:

Mistake #1: Living beyond your means
Filipinos are consumed with "wanting to live a better life."

Are you trying to live "that kind of life" with income that cannot sustain that lifestyle and ending up spending more than your monthly paycheck? Yes, you can fund that lifestyle with debt. Don't. Spending more than you earn is the surest way to keep that "better life" further away from reach.

Ralph Liew, chairman of the International Association of Regional Financial Consultants (IARFC) for the Philippines, Thailand, Malaysia and India, points out that the millionaires next door are the ones who save so much more than they spend.

"They are the ones who are saving a lot of money," he says.

The fix: Put off expenses if the income for the month will put you in debt or cause you not to save money for that period. Thinking twice about small things like the cost of lunch, a frapuccino or dinner at a restaurant will instill discipline and the habit of living within your means, which is most valuable in fixing money mistakes.

Mistake #2: Not saving enough
You've heard of the expression "It's not what you make that matters, it's what you keep." Saving monthly is the fundamental habit that makes any person-- whether a Jollibee crew or a professional working in a posh office in Makati--wealthy. Starting your first job and earning minimum wage may not make it easy for you to save regularly, but P50 savings per week in a simple jar near your bed is not a bad start.

As you mature, it will be easier to set aside a bigger chunk of money because you've been used to the habit.

"I save half of my salary automatically and try not to think about it," says Anna, a professional working in Ortigas.

The fix: Find a way to automate your savings to make it easier for you to save. There are some banks that provide this service. Make it a goal to save monthly, even if it's just a small part of your income--say 10 percent. Then increase this regularly when finances allow you to squirrel away more of your income.

Mistake #3: Being materialistic
It is common to see families in the provinces living simply with chickens running around in the yard, pigs being raised in the backyard, malunggay and other vegetables growing near the home. IARFC's Liew says when he saw Filipinos living this way, he realized that living simply and not measuring your worth by looking at what you have and what you can buy makes a person's life more meaningful.

"Don't try to keep up with the Joneses and don't just keep looking at the material part of life. Be frugal; don't overspend. Some of the people I see in the provinces live simply and they are okay," says Liew.

The fix: Keep your attention focused on the things that matter most: health, family, friends, and community. While money may make your children happy because of the things that it buys, there are other things that will make them equally happy, like loving attention, quality time and playing together, among others. Sometimes, the returns from non-monetary gifts are even higher.

Mistake #4: Giving in to greed
Billions of pesos every year are sucked into get-rich-quick schemes and scams that easily separates a Filipino from his hard-earned money. Liew says the reason for this is greed. Running after very high returns is a sure way of getting scammed.

The fix: Don't be wowed by quick wealth. Lightning may strike for some people, but the more stable and sure way to wealth is a slow accumulation of savings and investments. How about that hot stock tip or "new investment strategy" earning four percent in a day that made someone a millionaire? Just walk away from it. They will never tell you just how quickly they lost their money.

Mistake #5: Not knowing what you want
"People don't know what they want and then they end up wanting everything they see," says Liew. One of the building blocks of wealth is to know yourself and your limitations as well as your strengths. Husbands, wives and children should take time to talk about financial goals (i.e. our own home in three years, our own car in two years, studies in the United States for Junior in 10 years, etc.).

The fix: New Year or this coming Christmas holiday is a good time to create a financial road map for yourself or your family. Talk about what you want and how you intend to get there. Think about how long you want to attain your goals. Make a pact to revisit your goals every year to see how you are doing.

Mistake #6: Failing to pay off debts
The Philippines owes P122 billion in credit card debt, P14.2 billion of which have already fallen overdue as of June. Unfortunately, that's only a small part of consumer debt, as loan sharks still abound. Debt is like a Damocles sword that hangs over your head and makes you afraid to wake up in the morning.

Interest from debt never sleeps; it doesn't take days off or holidays. They are worms that eat voraciously at your financial dreams.

The fix: If you are thinking of borrowing money with no plan on how to repay it, don't.

If you have debt or several debts that need to be paid, create a plan now.

Start paying the ones with the highest interest while paying off the others with as much money as you can spare.

Then work on through that list until you have paid everything.

Mistake #7: Getting killed by advertisements
Glossy magazine inserts come in through the mail at a frenzied pace when the holiday season draws near. There are flat-screen LCD televisions to buy and new mobile phone models. Resist them if you don't need them or can't afford them yet.

The fix: If you are vulnerable to advertisements, make the remote your best friend and speed up your channel surfing. Don't even start flipping that glossy magazine insert. Avoiding advertisements or keeping yourself disciplined enough to enjoy them from a distance should help you keep your finances secure this holiday season.

Mistake #8: Not having a plan
"One of our most common mistakes is not having a financial plan, not following up on the plan and not implementing the plan," says Liew. He notes that many people have New Year's resolutions--for example, to quit smoking--but find themselves still doing so when the next New Year's eve arrives.

The fix: Give yourself the gift of your very own financial plan this Christmas season. You can talk to a financial planner to help you out or do it yourself.

There are many resources on the Internet to help you create a plan that will save you from money mistakes and point you to the right direction when it comes to understanding your money personality, how to save and invest, how to prepare to retire wealthy and prepare to be pampered in your golden years.

One of these is MoneySmarts, the personal finance blog of the INQUIRER.net.

Mistake #9: Not having financial education
People think financial education is only for those working in banks, mutual funds or in the financial services industry.

Granted, mathematics or statistics are not easy subjects for all, but knowing financial principles is useful to everyone.

Liew says that even children should have subjects on financial management.

The fix: Don't be shy. Ask among your friends if they know something about taking care of finances. Invest in books and take classes. Personal finance is a growing topic in local media.

Mistake #10: Procrastinating
Time doesn't stand still, not even for the Pope.

The best time to start making money moves that will save you from a life of want and need is now, not tomorrow or next week.

The best time to start a budget is now. The best time to save for retirement is now.

The fix: Stop reading and start doing.