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Five common money mistakes

Managing your finances isn’t always easy. But there are a few things you can do to avoid common money mistakes.

3 minute read

There are no hard and fast rules when it comes to money, and everyone is different. But there are a few things you can do to improve the way you manage your money, and a few common things to avoid.

The good news is, by taking note of what you could do better and making changes, you can start to improve your relationship with money. Here are five common mistakes you might make when it comes to your finances.

1. Spending too much money

If you don’t have a budget, or understand where your money goes, it’s easy to overspend. That’s why it’s important to understand how much you can afford to spend each week, fortnight, or month, and then allocate regular limits for things like groceries, eating out, and entertainment. Being on a budget doesn’t mean you can’t do anything, it just means you’re in control of spending within your means.

Overspending can be fuelled by peer pressure and wanting to keep up appearances, so be conscious of being swayed by those around you. If you’ve got kids, be realistic about how much you can afford to fork out at high-pressure times of the year, like Christmas and birthdays. Overspending at these times could really push you over the limit.

2. Not having a plan for your money

When it comes to money, and life for that matter, it also pays to have a long-term plan. One of the first steps to feeling better about money is to set some goals. Living day-to-day could eventually tip you into a place of hardship if you get landed with unexpected expenses, or it might mean you can’t live your best retirement life later down the track.

To help prepare for the unexpected, it’s a good idea to set up an emergency fund. Building an emergency fund can help you to stay out of debt if any unexpected costs come up. Set up a separate account and have an automatic payment go into it each pay day. If you choose a savings account you could earn you interest on the balance. 

3. Being swayed by your money beliefs

It’s important to be aware of where your money beliefs come from, and to try to be objective about your current situation, and where that might lead you in the future. Some people find themselves saying ‘I never have enough money’, or ‘money is hard to come by’ – even if they’re well paid. If you’re aware of why you think a certain way, you can start to change your beliefs.

4. Not managing the money you borrow 

When you're considering borrowing money from a lender it’s important to grasp the true cost of what you’re borrowing, including how interest rates and fees apply – your lender should explain this. Make sure you read the terms of borrowing carefully, and ask any questions you might have before you agree to take out a loan.

Depending on your particular credit contract, there are a range of consequences that might apply if you fail to meet your payment obligations. These could include default fees or interest, repossession of secured property or requiring a guarantor to repay lending.

Once you’ve signed along the dotted line, it’s a common misconception that your repayments are set in stone. It’s true that this is sometimes the case, but on the flipside, some lenders will let you increase the amount of your regular repayments without penalties. This means you’ll also reduce the amount of interest you pay over the long term, not to mention pay off your loan faster. A small increase can make a huge difference.

It also pays to understand what counts as a loan. When you take out car finance, for example, that’s a loan. ‘Buy Now, Pay Later’ may seem like a good deal, but it’s also a form of borrowing and you may be charged fees if you don’t pay the retailer back on time.

5. Paying the loudest business you owe money to first

For those who’ve got more than one loan and are behind on repayments, it can be tempting to focus on paying the creditor who calls you the most often or sends the most letters. You could be better off looking at your debts as a whole and talking to a financial mentor to see what you should focus on first. One option is MoneyTalks. Money Talks is an independent and confidential service which is completely free. The financial mentors can help you with confidential advice, and talk you through your options for getting on top of debts and covering the essentials.

If you're a BNZ customer, information about the consequences of default is set out in your terms and conditions. If you have any questions about the consequences of default for your credit contract, or if you are having any difficulties meeting your repayments, please get in touch with us.

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