If 2017 really is the year you’re going to focus on your fitness/hobby/family or learn a language/an instrument/how to drive a car, you’re going to have your hands full. So the last thing you want to read is a list of financial resolutions you could make, such as setting aside more time to check your bills and manage your money.
But even if you aren’t ready to take such proactive steps in managing your money, you could still quite easily make some real improvements. These are seven of the most frequent financial mistakes – and how we can avoid them.
Saving money when you have debt
Everyone should have some emergency savings in place – it’s absolutely essential for financial security. Most commentators recommend having between three and six months’ worth of salary saved, so that you can weather storms like unexpected bills, redundancy and household disasters.
However, if you’re saving more than that and you have expensive debt built up using credit or store cards, or high-interest personal loans, then it’s time to rethink your priorities. After all, the interest you will be paying on such debt will be much higher than the meagre returns you’re earning on your savings.
Keep an emergency fund but after that, prioritise paying down your debt first. Otherwise it will cost you far more in the long term.
Dipping into an unapproved overdraft
It’s horribly easy to do. An unexpectedly large bill hits your doormat or you get a bit carried away on a shopping trip and suddenly you’re in the red and racing past the overdraft limit the bank has set.
An unauthorised overdraft is one of the most expensive ways to borrow, with penalty fees and high interest charged. It can even damage your credit rating, making it harder to borrow in the future when you really need to.
If you think you’re heading for an unauthorised overdraft and you can’t avoid it then give your bank a call to see if you can temporarily extend your overdraft.
Applying for the wrong products
Not all debt is bad and it’s perfectly plausible that in 2017 it will make sense to apply for a loan or credit card. A common mistake people make is to apply for several products at once to see what rates they are offered, or to apply for a product they are unlikely to be accepted for.
These applications result in searches being carried out on your credit history and that leaves a temporary footprint on your file. If you make more than one application then the footprint can put others lenders off – multiple applications make you look like a higher risk – and mean you end up paying higher interest rates.
Instead, browse the market by using a comparison site or lender that offers a ‘soft search’ first, allowing you to see whether or not you are likely to be accepted and at what rate.
Underinsurance is a real danger that leaves people exposed when they are most vulnerable, but there’s another, lesser-known, mistake. Over-insurance, where you pay for more cover than you need, can leave you paying a substantial monthly sum for no good reason or benefit.
For example, if your employer provides a death-in-service benefit then you may decide you don’t need as much life insurance, or if your mortgage is paid down then you may not need as big a policy as you did previously.
What’s more, a surprising number of people do not realise they are insured twice through extras provided with their bank account, meaning they waste money unnecessarily. If you have a packaged current account, for example, check what is included. If you receive phone, travel and breakdown cover, make sure you don’t pay for standalone policies as well.
Having too much month at the end of the money
If this were an article about positive steps you can take to help you save and ‘detox’ your finances, then this is where we would suggest drawing up a budget. However, since this is about avoiding mistakes rather than making changes, we will simply suggest roughly dividing your disposable income by the number of weeks in a month.
When you know how much you have to spend each week, you can make sure you don’t overspend at the start of the month. Using up the month’s money too fast is what leaves you vulnerable to unplanned debt and financial shocks.
When you do have credit card debt it can be tempting to pay off just the minimum amount each month. However, that’s a tactic that can really backfire as it means you’re left paying interest for far, far longer, resulting in a much higher overall bill.
Clearing the debt by more than the minimum can save you hundreds of pounds in the long run, even if it is tough to manage on a monthly basis.
Not getting money you’re owed
A lot of people do not get all the help they are entitled to and this can leave them struggling. An estimated £10bn a year in benefits goes unclaimed by working age families and pensioners who are legally entitled to them, while it’s been suggested that low-income households miss out on £15bn in benefits and tax credits.
If you’re finding it hard to make ends meet, seek advice or check the benefits calculator available via the charity Turn 2 Us, which can give you an idea of whether or not you are missing out.