Three tips for avoiding common financial mistakes
According to the Financial Capability Strategy for the UK, 20.3 million adults don’t feel confident managing their money, and 11.5 million have less than £100 in savings. If you’re keen to take control of your finances and avoid common money mistakes, you’re in the right place. Here, we offer three tips to help you on the path to financial health.
Always pay off credit card debt in full
Making regular purchases on credit cards and then paying the balance off is a great way to boost your credit score. But when spending gets out of control, or you fail to pay back what you borrow on time, it can damage your credit score and make it more difficult to manage your debt. This can affect your chances of borrowing in the future.
The key to using a credit card responsibly is to make payments and then pay off your balance in full every month. This will show lenders that you are a responsible borrower, and reduce any interest accrued on your spending. You should also avoid using credit cards to buy things you can’t afford or splurge on items you don’t really need.
Spend in line with your earnings
You should also spend responsibly in line with your earnings. To make sure you don’t spend more than you can afford, you need visibility of your earnings, regular outgoings and disposable income. This will allow you to create a realistic monthly expenditure plan and spending budget in line with your earnings.
Start with your income and deduct any definite outgoings, such as mortgage/rent, fuel bills, council tax, insurance costs and so on. The figure you are left with is the amount of disposable income you have – but don’t be tempted to spend it all. Dedicate a percentage to savings and a percentage to non-essentials.
Create an emergency fund
You can’t always predict what’s around the corner. Life can present unexpected challenges sometimes, and you need to be best prepared to tackle them. Whether a household appliance breaks down, you need emergency dental treatment, or your car requires costly repairs, an emergency fund will provide much-needed cash to cover the costs.
Generally, you should aim to have three to six months’ worth of outgoings in an emergency fund to give yourself adequate cash to fall back on. For example, if you spend £1,500 per month on household and other essential outgoings, you’d need to save between £4,500 and £9,000.
By following these steps and taking care to manage your money well, you can pave the way to a more financially stable future.