From time to time, we will make financial mistakes. What is more
important than making such mistakes, is learning from them. Here
are some financial mistakes to avoid this year.
No plan
Even if you didn't start out with any goals or financial resolutions
before now, you can still get a handle on your finances. Financial
success rarely happens overnight. Don’t just sit back and expect things
to fall into place. The adage
“if you fail to plan, you plan to fail” is
true. A financial plan helps you to give some attention to what is
important to you and your family to be able to achieve your goals. So
much lies ahead that we must be prepared for. Don't wander through 2019
without a plan. Even though you can't predict the future, you can be
better prepared for it, if you plan ahead.
No emergency savings
We watched the news from the United States each day about the
implications for thousands of families following the partial government
“shut down.” Many did not receive their due paychecks. The importance of
an Emergency Fund to tide you over periods with little or no income is
glaring. We don't need to look far to see that all around us millions of
Nigerians struggle to live from paycheck to paycheck; that’s if they
have a job. For how long can you manage and fulfill short-term
obligations if your salary or other income were to stop suddenly?
As your family and responsibilities increase, plan for unexpected
emergencies. The size of your Emergency Fund will depend on your family
needs and your obligations. Ideally you should set aside about six to
twelve months of living expenses in a secure money market vehicle that
you wont be tempted to break into unless absolutely necessary. If you
fail to set aside some rainy day funds, you will be forced to resort to
debt should you lose your job, fall ill, or have a major unexpected
expense. Set up an automatic withdrawal as soon as your salary is
credited to start building up your emergency fund. Make this one of your
primary goals for 2019.
Don't ignore your insurance
Who wants to start the year thinking about accident, job loss, fire,
illness or death; clearly no one does; but you do need to protect your
assets and those you love including yourself.Not having adequate
insurance in place can have a devastating effect on your finances when
there is a mishap such as flood damage or fire. 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 delay long term investing
When you are young it is so easy to feel that you have all the time
in the world to start investing. Remember that the great advantage of
youth is time and you can’t get it back. Time is a major ally when it
comes to building lasting wealth.
Even if you don't have much, just get started. When you imbibe the
habit of saving and investing you can take advantage of time and your
funds will grow benefiting from compound interest and earnings.The
longer you wait, the greater the cost to you. The best time to start
investing for the future is now.
Avoid borrowing on behalf of someone else
A good friend asks you to help them get a loan from their bank. You
agree and borrow in your name on their behalf and sign off on the dotted
line. Your friend may have had 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. Be very
careful in considering such a request if you are approached. Money can
destroy friendship so don't be casual about borrowing and lending.
Not paying back money that you owe
This might be a small personal loan from a relative or friend or a
large financial loan from an institution. 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 score is very important,
in your business as well as your personal life. If you are in debt have a
plan to pay back what you owe.
Investing in what you don’t understand
So many people have been badly burnt from MMM, Swiss Gold and
numerous scams. Putting your funds in 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 to ignore it completely.
There is no “best” time to invest; invest regularly. You might consider
buying into a mutual fund; this way your portfolio would be
professionally managed and diversified which reduces risk. Always
consider your risk appetite, your time horizon and your goals before
investing.
Don’t borrow to buy an asset that you cannot afford
Remember that by borrowing to buy a car, you are paying interest on
an asset that starts to lose value from the moment you drive out of the
car showroom. If you must borrow to buy a car, consider buying one that
is fuel-efficient and with reasonable maintenance costs that you can
afford.
It is great to have a sprawling expensive house but be careful in
ensuring that you can actually afford to make the mortgage
payments. 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.
Not having an estate plan
If you have dependents, particular minor children you ought to have a
vehicle in place that can support them in the event of your demise. In
your will you can name a guardian for minor children. Why leave it to
the state to decide.
Overspending
If you are regularly spending more than you earn, the prospects for
future financial security will be a challenge. Create a budget and stick
to it. Don't look over your shoulder or on social media to see what
everyone else “appears” to be doing. Focus on your own goals. There is
no magic formula for creating and sustaining wealth. It comes from
careful planning, focus and discipline over the long term.
ABOUT AUTHOR
Nimi Akinkugbe has extensive experience in private wealth
management. She seeks to empower people regarding their finances and
offers frank, practical insights to create a greater awareness and
understanding of personal finance.
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