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Money insider reveals top 5 financial mistakes

Nicole Pedersen-McKinnon
·Contributor
·5-min read
Close-up portrait of her she nice-looking attractive charming lovely confused worried puzzled straight-haired lady closing face palms isolated over pink pastel background.
Have you made these mistakes? Image: Getty

Yes, times are tight. But I constantly see people inadvertently making them harder than they need be. True story.

You could make financial f**k ups with your money that are simple to fix and when you do, change your life. Or you could, yep, install those quick financial fixes... those that I’ve learned over a 20-plus year career in finance media and am about to share with you.

Financial F**k Up No.1: Having no Holy Sh*t fund

Because, with apologies for all the swearing. it seems like that kind of year! Stuff happens, right? Fridges break. Cars blow an engine. People lose jobs (and we know all about that in the COVID-economy).

When (not if) something goes wrong, having an emergency fund is life saving…and prevents you dicing with debt, which can be the financial equivalent of quicksand.

Your emergency fund should be equivalent to three months, if not six months, of your salary.

And I’ll tell you the perhaps-surprising place you should keep it in just a sec.

Financial F**k Up No.2: Being a Bill D.I.L.

Now, this is a term I’ve coined: Digitally Induced Laziness. You may think that so many companies are now determined to go paperless to save the environment. That’s just a ruse: Companies are determined to go paperless to boost their bottom lines…and see you over-pay.

All the offers to get bills emailed and the push to set up direct debits? They are meant to make the money you pay invisible. And after just a year or two, you’ll end up with one of the most expensive, possibly even substandard products around.

Utility providers, insurers and banks alike use this strategy to slug existing customers, while delivering tremendous discounts to lure new ones. They use the Bill D.I.L.s to fund their growth and customer-acquisition strategy.

Don’t fall for it. Instead, constantly become a new customer – elsewhere – yourself.

Financial F**k Up No.3: Keeping savings in the bank

Sounds smart? It’s not – if you have a home loan.

You should instead make sure you have a mortgage with an offset account – so an account that runs parallel and nets off its balance against your home loan balance. And you should house every dollar you have to your name in there.

This is far better than a savings account where today you’ll earn a pittance… and pay tax on it. You save the equivalent of your (higher) mortgage interest rate…tax-free.

Your emergency fund should also live in an offset account if you have a home loan, saving you delicious loan interest as well as keeping you nice and protected.

(And incidentally, all your mortgage overpayments should go into an offset account too – you can often hook up half a dozen separate ones. This is a crucial safety measure as lenders can raid any extra money you instead pay directly into a mortgage. For real.)

A final word though: Make sure you have a real offset account. Don’t sign up for one of the many lenders offering dangerous fakes.

Financial F**k Up No.4: Waiting to invest

Start today. I’m serious. The most valuable asset you have is time… time to make compounding work. Squander it and saving and investing gets exponentially harder and more expensive.

Say you want to be a millionaire by retirement at age 65 and can earn an average 8 percent investment return over the long term (historically feasible).

If you start at age 55, you’d have to save $5466 a month.

If you start at age 40, that falls to $1052 a month.

But if you started at age 20, you’d only need to stash $190 a month.

That’s roughly $6 a day. Better still, only $100,000 of that magic million has come from you… the rest is compounded investment returns, or earnings on earnings on earnings.

Our poor (literally) 55-year-old had to find $655,000 themselves.

So stop wasting time. Or you’re wasting a huge amount of money.

And never forget: if an investment seems too good to be true, it’s probably even a scam. Falling for one is the quickest way to undo your good work.

Financial F**k Up No.5: Frittering your future

This one is all about goal setting. Because it’s easy to simply spend everything you earn as soon as you earn it, if you don’t have those specific and terrific reasons to hold your money back.

The fact is we all need strong motivation to resist instant gratification. Figure out what yours is. But that’s not enough.

You also need to cost and calendar those goals. Focus on the actual date you can hit your most tantalising targets…without going into debt and paying more for each of them, in the form of interest.

And live your best life.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at www.nicolessmartmoney.com. Follow Nicole on Facebook, Twitter and Instagram.

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