When it comes to handling your money responsibly, some lessons are timeless. Some of us had the fortune of having money-savvy parents to pass down lessons while others had to learn the hard way by trial and error.
Today, we can avoid many mistakes by following a few pieces of general wisdom about handling money which can be readily found in books and in online articles. While the world of finance is always changing, here are a few lessons from the past that will always be relevant.
Avoid Buying Unnecessary Luxury Items
One of the biggest regrets people can have financially is spending big on things that don’t matter a few years later. A common example is getting on the new-car hamster wheel. Buying the newest, flashiest car can be alluring to some young people, some of whom go on to trade those cars in for new models every few years. A car is a big purchase with high ongoing expenses and rapid depreciation, from the price of the vehicle itself to insurance, registration, petrol and maintenance.
It’s one item that requires careful thinking and great care when it comes to how you decide to spend your money. Would a second-hand or earlier model car suit your needs just fine? If you’re interested in saving, always aim to tighten the belt when it comes to items you want rather than need.
Always Shop Around
Always look at every deal available before making a purchasing decision, no matter what you’re getting. Many of us are pretty good at doing this when it comes to general shopping such as looking for specials at supermarkets or a department store. It’s easier to get lax about it when it comes to more complicated financial products like home loans or insurance.
Flash advertising, hard selling tactics, boisterous claims about deals and a seemingly unlimited number of products on the market can make the process daunting, encouraging some to just pick something and get it over with. For example, many people just get loans from their bank for the sake of simplicity without shopping around, only to realise later that they are paying some of the highest rates. Getting the assistance of a broker is a great way of avoiding this error.
The Importance of Cash Flow and an Emergency Fund
Some people are very good savers, but then they make the mistake of tying up all their cash in assets such as stocks. This can cause problems if you have to dip into your savings, buy on credit or sell stocks to pay for a large savings, undercutting the interest you’re earning and feeling like you’re taking a backwards step.
Be diligent with saving up an emergency fund and ensure you have an adequate level of cash flow for your needs. It’s more advantageous to have a consistent stream of cash along with assets rather than having it all in capital and relying on selling it for a lump sum later.