When it comes to managing money, we’ve all heard about how important it is to budget, spend less than you earn and steer clear of bad debts like credit cards.
But there are also some more subtle financial blunders to watch out for that, left unnoticed, could cause significant problems down the track.
So, from the simple slip-up to the serious oversight, here are the five financial mistakes you didn’t know you were making.
1. Investing too conservatively (or not at all)
Whether it’s buying shares, property, or choosing the investment option in your super fund, investing means putting your money to work to generate long-term returns.
But a common mistake many young people make is investing their money too conservatively for their age, or not at all.
Young people have time on their side, which means they can ride out short-term market fluctuations in the hope of long-term returns.
This isn’t a cue to head to the nearest casino, or borrow way more than you can afford to repay, but when you’re young it’s a good idea to get some exposure to growth assets.
Just remember, building a diversified portfolio made up of a number of uncorrelated assets means the failure of one investment won’t see you come unstuck.
2. Not having an emergency fund
Being asset-rich but cash-poor is a common problem among younger folks these days.
While someone might live in a swanky rented apartment with an iPad or two, a great wardrobe and a well-stamped passport, lots of the time they’ll barely have two five-cent pieces to rub together at the end of the month.
That means that in the event of an emergency – say their car breaks down, they break a leg or lose their job – there’s not enough cash in the bank to cover expenses.
So it’s crucial to have an emergency savings account set up to deal with an unexpected event, not just pay for the next overseas adventure. Emergencies can’t be planned for, but the finances can.
3. Not having a plan
Without a plan the chances are your finances will just drift aimlessly in the current and never really get anywhere.
To start with, it’s a good idea to set goals about what you want to achieve financially, whether it’s saving for a holiday, buying a first home, or paying off a car.
Once you have goals, it’s easier to put a plan in place about how to achieve them.
And remember, planning isn’t just a one-off activity. It’s amazing how quickly situations change, so set aside time each week or month to go through the finances, and regularly review those goals.
4. Paying too much health cover
When was the last time you checked your private health insurance premium? You might be surprised at how much it’s gone up, so it’s worthwhile checking what you’re covered for and what benefits you actually use and need.
There’s no point being a healthy 25-year old covered for dentures. Or a grandmother covered for pregnancy. So assess your situation, know what you regularly claim, and shop around for the best deal, because these small oversights will add up over time.
5. Blindly trusting a partner
Whether it’s a lack of self-confidence, too much confidence in the other person, or just not caring enough about money, letting one partner in any relationship manage all the finances is a risky business.
Turning a blind eye could leave you strapped for cash in the event of a break up, and makes it far easier for the controlling partner to doctor the books and hide money.
So rather than burying your head in the sand, improve your knowledge of financial basics and go to any financial meetings with lawyers, financial planners or accountants together.
Always read the fine print before signing joint documents and make money decisions together.
Image: Hometown Beauty, via Flickr