5 Common Money Mistakes people make

We’re all guilty of it at one point or the other, but if we want to have more control over our finances and make money work better for us, it is best to learn to avoid these common money mistakes that can have such detrimental effects on our finances.  Here are 5 common mistakes people make.

Spending Money You Don’t Have Yet

You might be tempted to splurge on one or two things and tell yourself you’ll replenish the money with your next income, however when the income comes, you quickly realize other pressing commitments come up which you have to take care of. Ultimately, you end up overspending and being broke till the next paycheck comes. This will then put you in a tight and very uncomfortable financial position in the meantime and you might even end up borrowing to make ends meet; this is likely to launch you into a vicious cycle of debt (unless you’re able to discipline yourself enough to make the necessary sacrifices to get out of it).

READ: 5 costly mistakes entrepreneurs make

Forgetting That Small Purchases Lead Up to Big Expenses

Spending N500 here for a biscuit, then another N500 there for an exotic drink, might not seem like such a big deal at first especially when chilling on vacation. If you continue spending that way for a week, you would have spent N2500 more than you budgeted for and, though little, it can easily become a significant amount of money if you continue spending that way for a month. Little purchases add up, and rather than spending money frivolously, you can be using it to take care of important expenses like groceries. Pay attention to your ‘little’ expenses, if not you’ll be surprised at just how big they can become.

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Not Keeping an Emergency Fund

Never make this mistake because when these inevitable times come, they can leave you completely destabilized if you’re not adequately prepared for them. It is best to have some money saved in an emergency fund or bank account, which you can earn interest on, till an emergency occurs. On the bright side, if an emergency never occurs, you would have accumulated a significant amount of money that you can enjoy or re-invest wisely to make more money.

READ: 5 Common retirement mistakes people make

Spending More Than You Earn

You either spend less than you earn or earn more than you spend- this is the simple principle. Your spending should never be equal to your earning (because you need to keep some money aside for emergencies) or exceed your earning (because this can lead to debt and avoidable ‘gbese’). Living from paycheck to paycheck (that is, spending as much as you earn) or accumulating debt because you spend more than you earn, are very inconvenient ways to live. The importance of being disciplined with your spending cannot be overemphasized and you should make the necessary sacrifices or lifestyle changes to make your spending align better with what you earn.

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Not Having an Allowance for Entertainment Spending

There really isn’t much more that can be said on this topic than for you to ensure you have a budget for your entertainment expenses, which you must be disciplined enough to strictly adhere to. One thing that can help in creating an efficient budget for your entertainment expenses, is to understand your entertainment needs and set up a budget based on that understanding. Discipline then comes in, to help you determine the things you can in fact do without and the things you have to do without because you can’t afford them. You can then comfortably settle at a middle point, setting aside an average range for your entertainment expenses that you’re more likely to adhere to.