COMMON PERSONAL FINANCE MISTAKES

While statistics may lead us to think that overspending is common, it is certainly not wise and is even risky. But, with a little thought and effort, you can protect your pay cheque by being aware of these common financial mistakes and how to minimise them:

#1: Frivolous Spending
It may not seem like a big deal when you pick up that double-macchiato, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week costs you $1,300 per year, which if committed to an investment program, earning only 6%, would grow to $50,277 in 20 years.

#2: Never-Ending Payments
Examine whether you really need items that keep you paying money every month, year after year. Things like cable television, video games and mobile phones can erode your disposable income and compromise your ability to acquire growth assets. And yet, save and invest just $60 per week and invest it at 6% compounded and it will grow to over $500,000 in 40 years. To achieve $500,000 in 10 years requires $35,787 per year.

#3: Credit Cards
Living on borrowed money has become conventional as an ever-increasing number of consumers are willing to load up their credit cards and pay double-digit interest rates on petrol, groceries and a host of other consumer items. Paying interest because you failed to pay off the  credit card bill makes the items more expensive. 

#4: New Cars
A million new cars are sold each year, although few pay for them in cash. But the inability to pay cash, in full, for a new car means an inability to afford the car. Furthermore, by borrowing money to buy a car, the consumer incurs a debt on a depreciating asset. This debt is called “bad debt” in financial planning circles as opposed to “good debt” which Is used to buy appreciating assets.

#5: Buying More Car Than You Need
Many need a vehicle, but few have cash resources, so you have no choice but to take a loan. That doesn’t mean you really need a large SUV? The NRMA estimates a small car costs around 50 cents a kilometre to operate whereas a large SUV costs around twice that. These costs include the biggest cost in operating a car, the depreciation, or loss in value over its useful life. Own the car for 5 years and cover 20,000 kilometres each year and the larger vehicle costs $50,000 more!

#6: Buying Too Much House
When it comes to buying a house, bigger is not necessarily better. In real terms, houses go down in value; not the land, the house, so why choose a home of 400 square metres that requires you to pay for more than you need, or use. Taxes, maintenance and utilities on such a big home will put a significant, long-term dent in your monthly budget.

#7: Refinancing Your Mortgage and Taking Cash Out
Don’t refinance your home and take out cash unless you are going to use that cash to acquire an asset that appreciates in value.

#8: Living Pay cheque to Pay cheque.
The cumulative result of all this spending is to put people into an insecure position; one in which they need every cent they earn - one missed pay cheque would be disastrous. It's not that people in such a position don't earn enough money; it's that they spend more than they earn. Everyone has a choice, so it's just a matter of making savings a priority.

Article Source: http://EzineArticles.com/?expert=Neil_Handley

About the writer -----------------------------------------------------------------------------
Neil Handley graduated as a Bachelor of Economics and Accountant. After some 20 years as a stock broker Neil turned to property development. He then acquired a controlling interest in a property development company listed on the stock exchange and became CEO. He has been involved in developing residential subdivisions, industrial subdivisions,shopping centres, office buildings and medium density residential dwellings in Sydney's north shore, Northern Districts, Parramatta and Liverpool areas and on the Gold Coast, Queensland. One office building was sold to the AMP for $25ml. Neil's company advises on building wealth via property.
Go to  http://www.specialstrategies.com  .


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