If you could go back in time, what would you do?
Shares the five biggest money mistakes
Last week on Twitter I posted the three biggest financial mistakes my husband and I have made. Those errors that had long-term repercussions and which I wish we could go back and change. I asked what mistakes followers had made and what they wish they had done differently.
Many of them were very similar to the errors we had made: Cashing in a pension fund to buy a side business, overextending on a home and using our overdraft facility rather than cutting our lifestyle.
Learn from our mistakes rather than making your own.
Beware of debt: Debt came up as a big money killer for most of the Twitter responses.
● “Stay away from personal loans, rather save for goals. Over five years I paid three years on capital and then two years to the bank.”
● “Should have bought less expensive cars.” .“Car debt, credit card and personal loans taken for family emergencies.”
● “Clothing accounts are difficult to get out.”
● “Never take out a revolving credit loan. You will revolve in it forever.”
● “Credit cards were monsters for me.”
We learnt first hand the mistake of using an overdraft facility. It is way too easy to swipe your card and use the bank’s very expensive money rather than your own. Credit cards, store cards and overdrafts make the bank richer and you poorer.
Cars destroy wealth:
● “The lure of bling. Buying a reasonably priced car for 15 years and investing the extra cash in the market trumps getting a fancy new car every couple of years and remaining in debt.”
● “I should have had a 10% deposit when buying a car and negotiated better with the dealer. Read the contract.”
We were fortunate the first time we tried to buy a car the bank turned us down. This was before the increase in credit extension and banks were far more cautious. I was so angry at the time, but it was the best thing that could have happened. Now we only buy second-hand cars with cash – no financing. Buy a car that gets you from A to B.
Save from the beginning: Lack of saving or cashing in pensions is a lost opportunity.
● “Not investing from my first paycheque. And then investing in endowments and a retirement annuity with +4% fees. Changed RA providers and now invest in ETFs.”
● “My mistake was cashing in a pension to put a deposit on a house.”
● “Wish I knew earlier that every R300 I spend today could have been worth R1 a month for the rest of my life if I invested it. Also taking too long to figure out the difference between speculation and investment.”
When I changed jobs in my early thirties I made the classic mistake of cashing in my pension. I used it to buy a franchise as a side business. Maybe if the business had been a success I would have a different view of the decision, but the reality is that I used retirement savings for a a high-risk investment. That decision will cost me around R5 000 a month in retirement income. When you cash in your pension, even if it is for a deposit on a home, you take away retirement income.
Houses cost money: Understand the costs of home ownership.
● “Would have waited longer before buying our first house and figured out where our family want to be.”
● “Buying is expensive, lots of upfront costs and selling is expensive.”
Our mistake was selling our smaller but sufficient home for a big fix-a-upper which we believed would give our children a wonderful upbringing. All it did was bring stress and debt. When buying a home, do not underestimate the running costs.
Watch day to day spending: Money we waste without realising.
● “Should have cooked more at home to save money.”
● “My mistake was buying a pair of overpriced Adidas.”
● “Thinking it’s normal to have an expensive cell contract and upgrading every two years. That was really stupid.”
There are so many money decisions we make every day that over time add up to be wealth destroyers. The occasional splurge is fine, as long as it stays occasional and is never done with credit. The key to finding a balance between living today and growing wealth for the future is having a savings plan upfront so your money pays you first before it goes to day-to-day spending. Review your current spending habits or contracts and see where you can cut down without feeling as if you are sacrificing your lifestyle. Financing depreciating assets is a