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Student Budgeting

13 common money mistakes to avoid

Want to know how to be better with money? Start by avoiding these common financial mistakes.

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Credit: TiernyMJ (background), Nednapa (bottom left), Kamulpetra (topright) – Shutterstock

Financial decision-making is a skill you get better at over time, so don't be surprised if you make some of your biggest money mistakes in your teens and twenties. Being good at managing your money truly is an art that anyone can master, even the faintest of heart.

It all comes down to getting into good money-saving habits that, over time, will (hopefully) turn into a nice stash of savings in your bank account.

But, to get there, you need to know what the most common money mistakes are and how to avoid them so you don't end up falling at the first hurdle.

Make sure you've got a savings account with the best interest rate so you can earn money without doing anything at all.

Common money mistakes

Here are the most common financial mistakes and how to fix them:

  1. Not having a monthly budget

    Not keeping to a budget is a very common money mistake.

    It's often little luxuries that we don't notice that burn holes in our pockets. These could be an expensive gym membership, spending lots on nights out or unnecessary cab rides (although this discount code or this one can help).

    These purchases can be okay every so often. But when they start to become a habit and don't fit into your monthly budget, that's when there's an issue.

    Knowing when and how to stop spending money can be tricky at first. But following a budget of your monthly outgoings will help you keep track of your spending and find out which habits you need to break.

  2. Not earning money in your free time

    man making it rain with money and coins in the background

    Credit: Linda Bestwick (background), Cookie Studio (foreground) – Shutterstock

    Finding a way of making money in your free time is super important, and not just for your bank account.

    Having a bit of extra income is a way of propelling yourself toward your long-term financial goals. It's also a way to ensure that when you do treat yourself, you have the extra cash to do so.

    And don't make the mistake of thinking that making money on the side is only good for your bank account. Having a side hustle is a great way to enhance your career prospects and is sure to impress a potential employer.

    Whether it's pet sitting, setting up your own business, selling photos online or other passive income ideas, as our old friend Tesco would say, every little helps!

  3. Running up a credit card bill you can't pay off

    Using your credit card as 'free money' rather than only spending what you have is a one-way ticket to financial ruin.

    Treat your credit card (if you've got one) the same way you would your debit card.

    Thinking of getting that new iPhone? Instead of putting it straight on your credit card under the assumption that you'll be able to pay for it later, only put it on if you're sure you've got enough money in your student bank account to pay for it right now.

    The same can be said for overspending on buy now, pay later services like Klarna: only buy what you can actually afford.

    Being able to pay off your credit card or any other credit every month is vital. Any missed payments will be recorded on your credit score and could make it difficult to do things like get a mortgage or take out a loan later on.

  4. Using your credit card to withdraw money from an ATM

    Never use an ATM to withdraw cash on your credit card if and when you do get one.

    Cash withdrawals on credit cards are recorded on your credit score and can look like irresponsible spending.

    If, further down the line when you apply for a mortgage, a bank sees that you've been using your credit card to withdraw cash, they might be concerned about your money management. It could look like you're having to resort to your credit card to pay for basic living essentials.

    As such, it may lead them to think you're not financially stable enough to take on a loan.

  5. Not negotiating a salary when starting a job

    two professionals shaking hands over a table

    Another money mistake is not negotiating your salary before starting a new job.

    Negotiating your salary is essential for two reasons. Firstly, you want to make sure you have enough money to cover the basics like food and rent from the get-go.

    Secondly, negotiating your salary sets the tone of your relationship with your employer. If you go in with a really low figure, you're undervaluing your work and encouraging your employer to do the same.

    How to negotiate your salary

    Always expect an employer to turn down your first bid (this isn't always the case, but doing this is a precaution to prepare you for the worst).

    Go in with a number that is higher than what you'd expect, so you have room to negotiate down and arrive at the actual figure you would accept. So, for example, if you're aiming for £22,000, you could go in at £25,000.

    Also, any time you do get a pay rise, put the difference between your old salary and your new salary away safely. You're used to living on less, so the extra money you've recently been granted on top can be squirrelled away into your savings account.

  6. Lending money to friends when you can't afford it

    One of the common financial pitfalls to absolutely avoid comes from having a heart of gold. It's also one of the most common money mistakes you'll make in your twenties. But you live and you learn.

    Lending money to friends, especially when you're already having to live modestly, is a real no-go. It creates weird friendship dynamics whereby you're constantly tallying up their spending and thinking "that money could have been used to pay me back" every time they buy a pint.

    It will also inevitably lead to that awkward conversation where you have to ask for your money back.

    Best bet? If you're struggling to make ends meet in the first place, keep your purse strings to yourself.

  7. Not having an emergency fund

    An emergency fund is an absolute must. If you don't have one, you may find yourself resorting to short-term solutions you'll regret in a few years' time.

    Ideally, this fund should be enough to tide you over if your Student Loan is late or if your phone suddenly breaks and you need to buy a replacement.

    Having some money set aside for a rainy day can also be really useful if, once you've left university, you find yourself unemployed and without an income for a few months.

    There are loads of ways to make money if you're between jobs. But, it doesn't hurt to have some cash set aside to help you through a rough patch.

    Topping up your savings account a little bit each month, even with just a few quid (or putting a penny away in a jar each day), is a great way to get started without leaving you with little or no money to spend for the rest of the month.

  8. Having unrealistic financial goals

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    Credit: Paramount Pictures

    It's hard to know exactly where you'll be in 10 years' time. But, it is worth considering what some of your long-term goals are.

    Do you want to buy a house? Do you want to set up a business? Do you want to travel the world? These are all dreamy ideas, but they all have one thing in common: they require financial planning.

    Giving yourself some financial goals to work towards can be great motivation for kickstarting your career.

    Sit down and write out a list of things you want to accomplish. Work out a realistic timeline of when you'd like these things to happen and how much you'd need to save each week or month to get there.

    Keep the money for these goals separate from your emergency fund (if you can), and avoid dipping into it unless you really have to.

  9. Forgetting to cancel subscriptions you don't use

    When you sit down to review your budget, armed with your new personal finance skills, check if you're still paying for any subscriptions for services (streaming sites, for example) that you're no longer using.

    Free trials are a great way to save money, but we've all been guilty of forgetting to unsubscribe to a service before the trial ends.

    Amazon can be good when it comes to refunding unused Amazon Prime memberships you may have forgotten to unsubscribe from. That said, you'll have to contact them within a month of the first payment being withdrawn from your account and not have used it to purchase anything.

  10. Paying more tax than you should without realising

    When you do start earning, not knowing how to read your payslip may mean you don't know when you can claim a tax rebate.

    If you've been affected by either of these common tax mistakes you could be due a tax refund:

    Paying off your Student Loan too early

    Make sure that your Student Loan repayments haven't started if you're not earning over the threshold:

    • £27,295 a year for students from England and Wales who started university in or after September 2012
    • £20,195 a year for students from England and Wales who started university between September 1998 and August 2012
    • £20,195 a year for students from Northern Ireland who started university in or after September 1998
    • £25,375 a year for students from Scotland who started university in or after September 1998.

    If you're earning under those amounts and you've been taxed, you could be due a refund from the Student Loans Company.

    Another reason people end up paying too early is that SLC starts deducting money before the April after they graduate (repayments should not be taken off your earnings before then).

    This sometimes happens if you start earning above the salary threshold before you're eligible to start making repayments. This could be due to an admin error, such as a mix up of graduation dates.

    If you do start earning over the repayment threshold before the April after you graduate, check your payslip for any pesky SLC repayments that may have made themselves at home before they're due.

    Emergency tax

    If you've been put on the emergency tax code, you're probably paying more tax than you're supposed to and could also be owed a refund.

    This sometimes happens when you start a new job or start working for a new employer after you've been self-employed and HMRC doesn't have enough information on your income for the current tax year.

    HMRC will temporarily put you on the Emergency Tax bracket which shows up as 1257 W1, 1257 M1 or 1257 X on your payslip. Think of it as a default tax setting on any income you're earning above the personal allowance.

    This means you might have been paying more tax than you should have, and can claim this back when you've been put on the correct tax bracket.

    Get more information on emergency tax here and tax codes here. For more reasons why you could be due a refund, check out our guide to tax refunds.

  11. Not taking out insurance

    travel insurance, credit card, phone, keys, passport on table

    Credit: 279 Photo Studio - Shutterstock

    If coronavirus has taught us anything, it's this: always take out insurance on holidays. Always.

    In fact, taking out insurance on all big purchases is a no-brainer, whether it's mobile phone insurance, a holiday, your car or student contents insurance. How many times have you almost dropped your iPhone screen-first onto a rock-hard floor and dreaded picking it up to assess the damage?

    Paying just a little bit every month could save you from being financially shipwrecked in the future. Some insurance purchases come with serious perks too, like one year of 2-for-1 cinema tickets for just £1.55.

  12. Staying loyal to expensive banks and energy providers

    Staying loyal to banks and energy providers should be a thing of the past. Never assume that, just because you're a long-time customer, you'll be getting the best deal on offer. More often than not, the exact opposite will be the case.

    Banks and other utility providers know that people assume that switching means hassle. So, they rely on human laziness to keep your business (and your money) by not offering you a better deal once you've settled.

    But most of the switching process is automated now, especially when it comes to switching bank accounts.

    Some bank accounts offer great cash rewards and interest rates on savings for new customers. It's definitely worth shopping around if you think you could get a better deal.

    Due to the current energy crisis, it's very difficult to switch energy providers to get a better deal.
  13. Not looking for a better broadband deal or phone contract

    Financial decision-making comes in all shapes and sizes, and knowing when to switch over your bills is important. When it comes to broadband, you may not even have to switch to get a better deal as haggling can be just as effective.

    You could try phoning your current provider and saying very nicely that you're thinking of going elsewhere because you've found a better broadband deal. This could nudge the customer services assistant into offering you a better package than your current one.

    For mobile phones, more often than not, getting a SIM only deal and buying a phone elsewhere will cost you less than staying in a long-term contract, especially if you sell your old phone.

    There are occasions where it may cost about the same. But, a SIM only contract will likely come with a better data allowance and greater flexibility.

If you're struggling to keep up with the rising prices, see our guide on coping with the cost of living crisis.

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