Learn from your mistakes?
Learn from your mistakes or learn from the mistake of others, the choice is yours.
Have you heard the saying learn from your mistakes?
Many people believe you should learn from your mistakes.
Some people have different views of a mistake.
Many apply their filters, previous experiences and expectations to their mistakes, which provides an overwhelming feeling of failure.
Furthermore, they see mistakes as being problems rather than being stepping stones to finding solutions. In doing so, they avoid taking responsibility for their errors and therefore miss the chance to learn something new. This is taught early on it life, as society teaches us to feel guilty about failure and to do anything possible to avoid making mistakes.
However, there are some that see a mistake as an opportunity. An opportunity to learn. They review what went wrong, to understand and learn from your mistake. Identify the skills, knowledge, resources or tools that will keep you from repeating the error.
When it comes to making financial mistakes, they can have a significant impact on your financial future and can set you back years in achieving your goals.
Good judgement comes from experience and
experience comes from poor judgement
Think about a good decision you made recently.
When you made this confident decision, did your confidence stem from prior experience with trial and error that helped you learn how to do something right.
We make mistakes every day and while they aren’t all life changing, they always exhibit an example of what not to do next time.
What if you could learn from over 500 people’s financial mistakes?
Rather then waiting to make the financial mistakes yourself, setting yourself back years from achieving your goals and have to pick up the pieces to start again, there is an opportunity to learn from other peoples mistakes and set yourself up so you can make an informed decision.
Our Newcastle & Lake Macquarie Financial Planning Advisors have helped, supported and advised hundreds of families that have made a plethora of financial mistakes.
Our financial planners provide an opportunity for you to learn from other people, so you do not have to make financial mistake to receive the lesson.
This is one of the main reasons people of Lake Macquarie come to see our financial advisers.
They want to avoid making financial mistakes and rather pay for the lessons and advice to support them.
Some of the lessons we have learned from clients financial mistakes
Paralysis by analysis
Ben, 30, was a diligent researcher. He was also a procrastinator.
“I looked into buying my family home 4 years ago, but never pulled the trigger” he said.
Ben, who lives in the Brisbane, found himself tripped up by the staggering number of options, and the “runaway” property market.
He looked at different options and has put in over 30 bids for properties over the past few years, but as the property market moved he didn’t believe properties were worth that much, so sat back and waited… and waited… ‘
The Brisbane property market increased in value over the past few years, jumping by 30% in 2021.
The cost of this financial mistake has been over $300,000.
Having a clear plan, objective, timeline and expert advice can support in breaking down the walls of paralysis by analysis.
Going without a budget / Living pay to pay / Frivolous spending
Probably one of the most hated words or phrases in finance “budget”.
It doesn’t have to be too technical, just an understanding of where your money is going, to see if there is room for movement.
Just $50 per week spent on eating out costs you $2,600 per year, which could support you achieve your goals.
Focusing on;
Your income - salary, rental income, investment income
Your expenses - rent/mortgage, transport, health
Your luxury items - streaming services, home delivery, entertainment
Using your credit card for everything / Living on borrowed money
Using credit cards to buy essentials has become somewhat commonplace.
However, there is an increasing number of Australians that are willing to pay double-digit interest rates on petrol, groceries, and a host of other items that are gone long before the credit card bill is paid in full.
In some cases, we see people using credit which enables them to spend more than they earn.
Each month, if you don’t pay back what you owe in full, interest is generally payable on your credit card.
Interest rates on credit cards are often a lot higher than other forms of borrowing.
Therefore, the credit card interest rates effectively make the price of the items a great deal more expensive.
Keeping up with the Kardashians
The pressure to stay up to date with your friends, family and even celebrity icons can be subconscious, yet real motivation behind a number of poor financial decisions.
Whether it is Gucci sneakers, a face that may no longer resemble your own (botox), designer clothing, all of which you can’t afford, or even the latest smartphone when your existing phone works fine.
Keep it simple.
Spend less money then you earn or live within your means, stick to realistic goals and when you’re looking to make a purchase, ask yourself if it’s something you really need or if it’s something you simply want this week.
Borrowing money from family
When you are in a bind, while you may be tempted to ask your folks or mates for cash, remember doing that can put a strain on any relationship, particularly if it’s becoming a regular thing.
The person may need that money back before you can pay them. They might also begin judging your spending habits, or worse, cut you off if they don’t get the money back on time or at all.
We had a 57 year old client who was $320,000 in unsecured debt, that they owed their elderly mother.
The mother passed away and the sister came knocking for the cash.
This destroyed their family relationship, firstly with the mother, then the only family they had left with their sister.
We were able to provide a solution that got them out of the bind and back on track to achieve their personal goals.
However, they are still in the process of mending their relationship with their sister, and have no ability to mend the relationship with his late mother.
Buying a new car
I recently went through this with my wife hahaha.
Upgrading or purchasing a new car can become overwhelming.
Millions of new cars are sold each year, although few buyers can afford to pay for them in cash.
The purchase price of a new car is one thing, but remember you will also need to factor in added costs, such as insurance, rego, petrol, and servicing.
The crazy thing about buying a new car is that over 2.7 million Australians have a car loan, which means paying interest on top of the purchase price may need to be considered too.
After all, being able to afford the repayments is not the same as being able to afford the car.
Forking out for degrees without a career plan
While degrees could increase your employment opportunities and potentially help you earn more money over the course of your career, it’s also not guaranteed.
With that in mind, it’s worth asking yourself whether the field you want to enter requires a degree. If you can get where you want through alternative routes, these may be worth exploring.
After all, the average amount of outstanding debt for a tertiary student in Australia is $23,000, with the average time taken to repay this debt taking a little more than nine years!!
We have had two clients in a similar position in recent weeks come to us for support.
One had completed a physiotherapy degree and is looking to go back to uni and change careers. There is a $55,000 debt to repay before the start of the new degree which is around the similar cost.
Therefore, this client will have over $110,000 debt before they actually secure full time employment.
The other client completed a Geoscience degree ($70,000) before completing a law degree ($55,000), before securing a full time role.
These are some crazy numbers for a young person to have hanging over them before they secure they first full time role.
Rather then jumping into debt (also known as university), take some time to research the employment opportunities, the salaries, do work experience for free for a few weeks to see if this is your passion or
if you are enrolling in this degree for your parents, whether it is their goal or it is to get them off your back.
Saying “Whatever” to an emergency fund
One in five Australians have no emergency savings to keep them safe when faced with unforeseen circumstances.
However, we believe this to be significantly higher. As this was glaring during the recent global pandemic.
The lack of a safety net by so many Australians was so incredibly poor that many had to rely on government handouts to get by.
Many of our clients prefer to be in control of their future, by having the peace of mind that they have 3-6 months worth of living expenses up their sleeve.
Avoiding the money talk with your partner
Why?
So many Australians admit to lying to their partner about money, with hidden debt and secret spending the two most common factors.
Before taking your relationship to the next level, whether that be commitment, assets, children, or even setting up joint accounts, make sure everything is out on the table.
Where you both understand how you will contribute.
In addition, if you are planning on moving in with that special someone, you may also want to discuss the worse case scenario and be across what happens to your finances if you were to split up.
Spending a fortune on your wedding
The average wedding is $36,000.
60% of Australians take out a loan for their wedding.
18% of Australians use their credit cards to help fund the costs.
If you are considering getting married, start saving early, talk to your partner (and parents as somehow they always get involved hahaha), write down what you can afford,
get quotes, and look at how many guests and who should realistically be on your guest list.
Getting divorced
Getting divorced has the number one impact on your financial situation.
We see this all too often that a bitter divorce leaves someone starting again financially.
Furthermore, sometimes if one partner had been in charge of the investing, assets and finances, assets can be split with large capital gains or other factors that diminish the asset value.
Understanding or discussing what happens to your finances if you were to split up is a critical first step.
Having it written down or a binding legal agreement is the next step to take to ensure should something happen, everyone understands where they stand.
Just as business partners have shareholder agreements, couples should also have agreements that have exit strategy mapped out.
If you are divorced and starting again, it is critical that you understand your finances, your financial plan, and your goals moving forward.
Saying “She’ll be right” about protection
Many of us will suffer from an unforeseen event that will leave us incapable of working and earning an income at some point in our life.
Whether that is injury or illness.
While some choose to go without insurance to save money, many are unaware whether they can afford premiums or have their super money pay for their insurance cover.
Choosing a property that’s beyond your means
Whether you are renting or buying, it is important to think about the upfront and ongoing costs.
In particular the location you are looking at, as different suburbs come with different price tags.
When it comes to buying a home, bigger is not necessarily better. Unless you have a large family, choosing a large 5 bed home, may only mean more expensive rats, maintenance, and utilities.
Do you really want to put such a significant, long term dent in your monthly budget?
Using home equity like a piggy bank
Refinancing and taking cash out of your home means giving away ownership to someone else.
In some cases, refinancing might make sense if you can lower your rate or if you can refinance and pay off higher interest debt (credit cards).
This is common practice in Australia, especially over the past 30-40 years as house prices have continued to grow.
Whether it is drawing down for a new car, a holiday or even to get through Christmas.
However, it is difficult to continue to get ahead or reach your financial goals if you continue to go into further and further debt to meet your luxury lifestyle needs.
Not caring about your future self - not investing for retirement
If you really think about yourself in retirement - what would you like to see yourself doing?
Many people will be funding a retirement of 20 years or more, and for most the Age Pension isn’t enough to support a comfortable lifestyle.
And for many of us, the Age Pension will not be available and will go back to being a safety net for those that cannot support themselves.
For many, working for 30 years and making the bare minimum compulsory employer contributions will be more then enough.
However, for those that haven’t had superannuation for their entire working life, have had time out of the workforce, or are self employed,
there may need to be a greater emphasis placed on your retirement plan.
Withdrawing your superannuation benefits
At retirement, accessing your entire superannuation benefits and withdrawing them.
This is the second biggest financial mistake (after divorce) we see.
Many people have no education or understanding of the superannuation system.
There is no other structure or entity in Australia where you can have a tax free environment for your investments and earnings.
In moving the benefits to your own name, the money is not invested and any interest accrued will be taxed at your marginal tax rate.
Not having a plan
Your financial future depends on what is going on right now.
People spend countless hours watching TV, scrolling bookface and the gram, but setting aside one hour a week for your finances is out of the question?
You need to know where you are going?
Make spending some time planning your finances a priority and take control of your financial future.
Should you have any questions, please do not hesitate to reach out to our Newcastle & Lake Macquarie Financial Planning Advisors who can support you and your family avoid financial mistakes and learn from other peoples financial mistakes.
