(03) 9020 2905Time to name your weakness. What’s the stupid thing you do time and again?
I’ll go first. Buffet. I’m hopeless. If a waiter hands me an empty plate (with more empties ready for courses two to 13) and says “Knock yourself out”, I follow orders. I have an exemplary record.
When I finish at a buffet, I’m inevitably a “wafer-thin mint” away from recreating the demise of Mr Creosote (the fat bastard from Monty Python’s The Meaning of Life, who exploded over the entire restaurant).
I’m appalling at Christmas. Christmas in both my families (mine and the out-laws) are two-week-long buffets. I inevitably take up jogging in January.
What about you and your finances? There’s a good chance your actual weakness is a result of the same base ingredient that gets me into trouble with buffet.
It’s called greed. Not accepting you’ve had enough of a good thing.
What are the five biggest financial mistakes that people make time and again?
No emergency fund
Seriously, you’re an idiot if you couldn’t see THAT coming. THAT being those inevitable disasters. Cars blow head gaskets, teeth get chipped while downing tequila laybacks, jobs get retrenched, the washing machine/dishwasher /dryer/TV will blow up.
S—t happens. Regularly. If you don’t have an “emergency savings fund”, then you’re assuming Jedi powers will guide you through disasters.
Even if you’re living in a hippie commune, which I’ve tried, the “peace” pipe will occasionally need replacement, a freak storm will destroy your mung bean crop and the 1954 Volkswagen Kombi, with LSD-induced flower-power painting all over, will snap a drive-shaft.
Emergency funds are essential. It really should be about 2-3 months worth of salary. And when the inevitable emergency happens, and the savings get sucked out like water in a bathtub … suck it up and rebuild.
Financial skid marks
Cars are the greatest blood-sucking, Jones-matching, financial vacuum cleaners in existence. More people blow up more money on cars than on any other asset they’ll own over their lifetime.
They’ll buy an eight-cylinder rather than a six, a six instead of a four. They’ll buy something “nicer” because the car dealer’s finance guy said they could. Most people, over their lifetime, could have spent half as much money on cars as they did, and still have had nice wheels at all times.
Cars are depreciating assets. The more you borrow/spend, the more you’ll lose. You could save $10,000 a year on cars (finance, more expensive servicing, upgrading, etc) easy. That’s $100,000 in a decade.
Accepting “free” credit upgrades
The “Cool, I’ll have it now, thanks”, with the killer kidney punch. Offers of increased limits for your credit card, the free finance option at the furniture store … most people won’t repay it in the allotted time and will incur thousands of dollars in extra charges.
Won’t happen to me
Sure it won’t! You’ll be right. You won’t need insurance. You’ll never get robbed, crash your car, contract cancer, get seriously ill and be unable to work, drop dead, leaving your wife and kids homeless because they can’t afford the mortgage anymore.
There’s general insurance, which covers your car, home and contents. Most people get that and insure those.
Far more importantly is protecting your life/health. What happens if you or your partner die, have a major accident or illness, or are unable to work for an extended period? Is your backup plan tin-rattling to pay the mortgage at the nearest busy intersection? Can you clean wind-screens adequately while the lights are red?
Life insurance, particularly income protection insurance, kicks in when the proverbial hits the fan. Some of it is about protecting your family. Some of it is about protecting the whole family unit, including you.
Living beyond your means
Happiness, said Charles Dickens, is when annual income equals 20 pounds and annual expenditure equals 19 pounds. Misery, he continued, is when expenditure is 21 pounds.
It’s budgeting. If you spend more than you earn, you enter debt. Do it continuously and you end up like the Greek government. Broke, begging for mercy and being despised for several decades because of debt “haircuts”.
Like a buffet, it’s all there for the taking. The trick is knowing when to say you’ve had enough.
Next Christmas, I’m going camping. Me and some damper.
Bruce Brammall is the author of Debt Man Walking (www.debtman.com.au) and a licensed financial adviser. bruce@debtman.com.au.