13 common money mistakes to avoid
Want to know how to be better with money without living like a hermit? Start by avoiding these common financial mistakes and let the good times roll.
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.
Common money mistakes
Here are the most common financial mistakes and follow-up lessons in how not to spend your money:
Not having a monthly budget
This is a common money mistake that almost all of us have succumbed to at some point: living beyond your means.
We're not talking about the odd treat here and there – a little splurge every once in a while can be good for the soul. We're talking about trying to maintain a lifestyle that you can't afford.
It's usually the little luxuries that we don't notice that burn holes in our pocket, like that expensive gym membership, spending lots on nights out or unnecessary cab rides (although this discount code can help).
These are fine every so often, but when they start to become a habit, that's when you're in trouble.
Knowing when and how to stop spending money can be tricky when you're stressed about exams and deadlines. But keeping a loose budget of your monthly outgoings is a great way to keep track of where your money is going and find out which habits you need to break.
Not earning money in your free time
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 towards your long-term financial goals. It's also a way to ensure that when you do treat yourself, you have the cash in the kitty 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.
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, as 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.
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. Biggest. Mistake. Ever.
Cash withdrawals on credit cards are recorded on your credit score and can look like irresponsible spending, which is a big red flag for banks providing commercial loans.
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, it might look to them like you don't know how to manage your money and are having to resort to your credit card to pay for basic living essentials.
The bank could assume that you were in a tight spot and had to withdraw cash using your credit card because you had no money left in your bank account. As such, they may think you're not financially stable enough to take on a loan. Eek!
Not negotiating a salary when starting a job
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 basic needs 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 £26,000.
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.
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'll also inevitably lead to that awkward conversation about when you'll eventually see your money again.
Best bet? If you're struggling to make ends meet in the first place, keep your purse strings to yourself.
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.
We're not talking a secret stash, Breaking Bad style. An emergency fund should be just enough to tide you over if your Student Loan is late or if your phone suddenly breaks and you need to buy a replacement immediately.
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 a safety net 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.
Having unrealistic financial goals
It's hard to know exactly where you'll be in 10 years time, but it is worth considering what some of your goals are long term.
Giving yourself some financial goals to work towards can be super motivating for kickstarting your career, not to mention your mental health and self-esteem.
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. You got this!
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 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 some obscure indie film streaming service before the trial ends.
Amazon is pretty 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 the first month of the first payment being withdrawn from your account and not have used it to purchase anything.
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
- £19,895 a year for students from England and Wales who started university between September 1998 and August 2012
- £19,895 a year for students from Northern Ireland who started university in or after September 1998
- £25,000 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. Sometimes this is due to an admin error e.g. 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.
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 don'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 1250 W1, 1250 M1 or 1250 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've been in the first place, and can claim this back when you've been put on the correct tax bracket.
Not taking out insurance
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.
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 banks offer great cash rewards and interest rates on savings for new customers, so it's definitely worth shopping around if you think you could get a better deal. The same goes for gas and electricity – you could be saving up to £400 every year with one simple switch.Some energy providers offer you cash for switching – including Bulb.
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. But it comes to broadband, you may not even have to switch to get a better deal as haggling can be just as effective.
Phoning up and saying very nicely that you're thinking of going elsewhere because you've found a better deal will often nudge the customer services assistant into offering you a better package than what you've got already.
There are occasions where it may cost about the same, but the SIM only contract you'll get will most likely come with a better data allowance and greater flexibility.
So, it's a win-win either way!
Got to grips with these financial mistakes that could you leave you penniless? Congrats – now let's make you a millionaire.