5 of the biggest financial mistakes

The 5 biggest financial mistakes to avoid

Our current financial situation is a product of all the financial decisions we have made up to this point. We often make financial decisions with all the right intentions, but sometimes things may not work out as planned.

Sometimes we tend to ignore or fail to apply the basic financial principles and end up making financial moves that prove costly in the long run. The truth is that we are all prone to making financial mistakes in life if we are not careful.

Understanding the basics of personal finance and avoiding the 5 biggest financial mistakes will help you make the best of your finances in the future.

Mistake No. 1: Unnecessary spending

The old saying of ‘spend only when you need to’ still holds true. Some of us tend to ignore the implications of small every day costs of things like eating out, buying that bar of chocolate or that coffee; but in the long run these costs have a huge impact. Spending just 100 dirhams a week on eating out and buying unnecessary items means spending an extra 4,700 dirhams per year – which could be useful in paying a mortgage or a number of car payments.

Mistake No. 2: Living on credit

Don’t spend what you don’t have. Credit cards give us the power to buy even the things we can’t afford in a paycheck to paycheck lifestyle. But we often underestimate how the cost of credit i.e. the interest rates, increase the price of bought items in the long run. If you make bigger purchases and can’t pay your credit card bill in full, you will find yourself in a never-ending cycle of credit card debt.

Mistake No. 3: Not maintaining savings and emergency funds

When households are heavily reliant on the monthly salary and cannot make provisions to keep the advisable 10% to 15% of their income in savings and emergency funds, chances are they will be caught off-guard in case there is an emergency. Experts advise to keep three months’ worth of living expenses as emergency or backup funds to be prepared for life’s uncertainties.

Mistake No. 4: Not buying insurance

Caught in the cycle of managing monthly income and expenses, one tends to ignore the importance of being insured. Medical conditions, death and disability cannot be predicted. Thinking ‘it won’t happen to me’ and considering insurance an expense you can do without will create problems for your family if you are the income earner and something untoward happens to you.

Mistake No. 5: Not investing for your future

The best way to make more money from your existing money is by investing it in the market and paying into retirement plans. If you do not utilize your money to make more money for yourself, then chances are you might never be able to stop working – ever. Speak to your financial adviser to understand the time your investments will need to grow and the amount of risk you are willing to take in achieving your financial goals. When households are heavily reliant on the monthly salary and cannot make provisions to keep the advisable 10% to 15% of their income in savings and emergency funds, chances are they will be caught off-guard in case there is an emergency. Experts advise to keep three months’ worth of living expenses as emergency or backup funds to be prepared for life’s uncertainties.

About the author:

Tony Ashton is a Senior Wealth Manager Based in Al Ain he can advise on all aspects of Financial Planning. He can be contacted on 050 7953305