From time to time, we will all make some financial mistakes. What is more important than making such mistakes, is learning from them. Below we have identified some of the more common financial mistakes that lead to economic hardship so that you can try to avoid them in your financial life.
Apart from maybe winning the lottery, or inheriting a fortune, financial success doesn’t just happen. Most people live from day to day adopting a “spend as you go” lifestyle with no clear plan in place to save for specific future events or protect their families from unforeseen circumstances. The adage “if you fail to plan, you plan to fail” highlights the importance of having a clearly defined plan or achievable goal in place to work towards. You can’t just sit back and expect things to fall into place. Even though you can’t predict the future, you can be better prepared for it if you plan ahead.
Avoid borrowing on behalf of someone else. A good friend asks you to help them get a loan from their bank. You then accede to the offer and borrow in your name on their behalf and sign off on the dotted line. Your friend may have very good intentions at the time of borrowing but if they should run into financial difficulty and fail to pay you back, you are liable to pay the loan back in full. If your friend or relation couldn’t get a loan through a bank or other lender, there may have been a good reason for the decline. Be very careful in considering such a request if you are approached.
One of the worst financial mistakes you can ever make is not paying back money that you owe; this might be a large financial loan or a small personal loan from a relative or friend. If you have the habit of not paying borrowed funds back on time or even at all, it will all come back to haunt you, as no one will want to lend you money even if its just to tide you over a difficult patch. Your credit worthiness is very important, not just in your banking relationships but also in your personal life.
Don’t invest in what you don’t understand What works for one person may not work for another as each person’s risk profile, goals, and circumstances, differ. Putting your money in investment vehicles that you do not understand can have devastating consequences. Invest only in what you understand and try to make financial decisions based on adequate research and advice from experienced and tested professionals.
Even if you were one of the thousands of people that got burnt during the stock market crash, it is a big mistake is to ignore it completely. With some blue chip stocks still selling at considerable discounts, it is an ideal time to invest. If you have been scared away from the markets, at least consider buying into a mutual fund; this way your portfolio would be professionally managed diversified; this reduces your risk. Be careful not to speculate; consider your risk appetite, your time horizon and your goals before investing.
Most Nigerians are under-insured. Many do not have even third party insurance let alone comprehensive insurance in respect of their cars! Not having adequate insurance in place can have devastating effect on your finances should you hit an expensive car when you are at fault; the bill could run into hundreds of thousands of naira. Yet the simple payment of the annual premium could help one avoid this.
Accidents do happen. Nobody wants to be left paying expensive hospital bills or witnessing a family unable to make ends meet because of the untimely death of its primary breadwinner. Make sure your health insurance is up to date and that you have adequate life insurance particularly if you are the primary bread-winner of a young family. Don’t let any of these policies lapse, as the consequences can be grave for you and your family.
Don’t borrow to buy an asset that you cannot afford. Remember that by borrowing money to buy a car, you are paying interest on an asset that starts to lose value from the moment you leave the car showroom. Of course many people have no choice but to take out a loan to buy a car. Some vehicles are very expensive to buy, insure, fuel and maintain. If you need to buy a car and must borrow to do so, consider buying one that is fuel-efficient and with reasonable maintenance costs.
Likewise avoid buying a house that you can barely afford; It is great to have masses of space but naturally a large house requires significant expense in terms of maintenance and utilities. Instead, identify a property that is less than what the bank says you can afford. That way your payments will be manageable and you can continue to build your savings and financial security.
While most people don’t do enough towards achieving financial success, there are others whose priorities have become so warped that money takes the first position in their lives. Remember that money is simply a tool, a means to an end and should never be considered the end in itself.
Photo Credit: thefrugalfeminista.com
Nimi Akinkugbe has extensive experience in private banking and wealth management. She is passionate about encouraging financial independence and offers frank, practical insights to create a greater awareness and understanding of personal finance and wealth management issues. She is married with 3 children.Find out more via www.nimiakinkugbe.com