Financial Mistakes You Are Making Right Now

Financial

mistakes you

are making

right now

Steve hughes

Financial Mistakes You Are Probably Making Right Now

We all know the big ones, not having a budget, not investing, running up credit

card debt. If you’ve avoided or overcome those, well done! But you might not be

out of the weeds yet. There is a whole host of mistakes that people make with

their finances.

Here are some you might not have addressed yet.

1. You Don’t Pay Yourself First

I did this for years. Whatever money was left over at the end of the month is the

money I saved. Sometimes there was money there, but more often, there wasn’t.

It takes discipline not to spend money. But not to spend what you never see.

Have a portion of your salary auto-deposited into your investment account, or, at

least, a savings account, so that it’s out of site, out of mind, and out of your hands.

In George S. Clason's 'The Richest Man in Babylon', one of the first 'laws' is to keep

a portion of your income for yourself. It is vitally important that you pay yourself

first (some recommend 10% as a good place to start), and then take care of all

other costs, obligations and wants from the remaining 90%. It's a great book,

well worth reading.

www.stevehughes.co.za


2. You Have No Debt Plan

It’s not enough to just make a payment every month, especially just a minimum

payment. If you have debt, you need a plan to tackle it. You can use the 'Stack'or

'Snowballing'method. (See explanation below)

Stacking makes more sense mathematically, but if you need the emotional win of

killing a small debt completely, even if it’s not the highest interest one, that’s fair

enough.

Having a plan also gives you an end date, and it’s motivating to count down the

months, weeks, and eventually days until you’re debt free.



SNOWBALLING

Snowballing means listing all of your debts in order of smallest to highest dollar

amount and then using any extra money to pay off the smallest balance while

only paying the minimums on the others. If you have a R80 000 student loan at

4% interest, a credit card balance of R60 000 with 17% interest, and a

R 100 000 car loan with 9% interest, you pay off the student loan first, followed

by the credit card and finally the car. Once the smallest debt is paid, you move to

the next smallest using the same strategy and include the amount you were

paying on the first debt into your monthly payment on the next. You continue to

do this until all of the debts are paid, the largest being last one to go.

Snowballing Pros

A big pro for this method is the psychological win it provides you. It’s so satisfying

to cross a debt off your list. That boost can also give you momentum; you killed

that one, you can kill all of these debts! This kind of boost is no small thing.

Snowballing also makes your life just a little bit easier. Each debt paid off is one

less payment you have to remember to make, one less check to mail or electronic

payment to schedule. This method is also likely to be faster. Paying off the

smallest debt first might mean you can get rid of it in just a couple of months.

Snowballing Cons

It’s a big one; it costs more money, in the end, using the snowballing method.

Interest is powerful, and when it’s working against you, it’s working hard. It also

takes discipline to use this method. You free up money more quickly because

you’re killing off those smaller debts faster than with the stacking method. What

you’re supposed to do with that money is put it towards the next debt on the list.

But you didn’t get into debt because you have steel clad discipline. You might see

those extra Rands in your bank account and think it’s more money to spend.

No! Bad!

Put it towards the next debt.



THE AVALANCHE METHOD (aka STACKING)

To use the avalanche method, you list your debts in order of highest to lowest

interest rate, regardless of the dollar amount of the debt. You throw as much

money as you can at the debt with the highest rate of interest. If you have the

same debts we listed above, they would be ordered this way; the R60 000 credit

card, the R100 000 car loan, and finally the R80 000 student loan. Once each

debt is paid, you move down to the next highest interest rate one, again, using

the money you were paying towards the last debt, and do the same. So on and so

on until all the debts are paid.

Avalanche Pros

The stacking method makes the most sense financially. You will pay less in interest

if you choose this method. We pay 34% of the money we make over our lifetime

to interest. Minimizing that as much as possible is a big cornerstone of being

financially healthy.

Avalanche Cons

Stacking’s biggest con is snowballing’s biggest pro. It can take awhile to pay off

debts with the stacking method, and it can be discouraging. You don’t get the

quick gratification of paying something off relatively fast.

SNOWBALL vs AVALANCHE:

Let’s do a real numbers example to show the difference between the two

methods: Our smallest debt is R10,000 with an interest rate of 19%. We pay

R1 000 a month. By the time the debt is paid off, we will have paid R972.80 in

interest. Now let’s use the same numbers but this time, R10 000 is not our

biggest debt, but it does have the highest interest rate at the same 19%. Because

we’re throwing everything at this one, we up our payment to R2,000 a month.

At the end of this debt, we will have paid R503.30 in interest. That’s a big

difference; you will be paying nearly twice as much interest if you use the

snowballing method versus the stacking method.



3. You Ignore Your Credit Score

Having a good credit score can save you thousands of Rand in interest over your

life. The better your score, the better the rate of interest you’re offered when you

borrow money for things like cars, homes, and personal loans.

You can easily see your credit score at www.fincheck.co.za or a number of other

platforms, but no matter what you do, Never pay for your report.

As the reports can differ due to errors, it’s a good idea to check from 1 or 2

resources. There are four main credit bureaus in South Africa: Experian,

TransUnion, Compuscan and XDS

If your score is not what you would like it to be, here are a few ways to improve it.



1. Account payment history

How you manage your accounts and whether you do or do not pay the entire

instalment amount on time every month.

What to do:

Look at your credit report. You will see which accounts you have not been paying

as you should. Then ensure you pay the full instalment owing on each of your

accounts on time, every month.

2. Too much debt

How much you owe and how much of your available credit you’re using.

What to do:

Try to keep your utilisation of your current credit facilities to less than 35 percent

of your limit. For example, if you have a credit card or a store account with a limit

of R1 000, try to maintain the amount owing balance at under R350.

3. Negative information

Publicly available information in your credit record, such as judgements or

administration orders issued by a courts which indicate that you were unable to

meet all your debt obligations.

What to do:

Check your credit report for all negative information; and take active steps to pay

all your outstanding debts in full so that this information can be removed from

your credit report.



4. Length of credit history

How long each of your accounts has been open.

What to do:

Maintain a healthy mix of credit (e.g. store accounts, credit cards, home loan,

service contracts such as cell phone accounts and so on) in order to establish a

strong credit history.

5. Account application and enquiry activity

Within a short period of time, how many account applications you submitted and

how many new accounts you opened.

What to do:

Try not to shop around too much for credit at the same time. Too many

simultaneous applications could indicate that there has been a significant change

in your financial circumstances.

Finally, check your credit report – and your credit score – regularly. Look for

anything that does not seem right and contact the credit bureau to dispute any

inaccuracies. This will potentially safeguard you from identity theft, as well as

guide you to paint yourself in the best possible light in the eyes of the credit

provider.

If time is money are ATM's time machines?



4. You’re Obsessed With Your Credit Score

It’s important always to have a good score. Landlords may check it when you rent

an apartment, and some employers will check it too. But if you’re chasing the

near-mythical perfect score, RELAX!

Unless you are in the market for a big purchase like a car or a home, you don’t

need to worry too much about your score. And if you are in the market for a loan,

anything in the green will be enough to get you the best rates.

5. You Pay Full Price For Everything

You almost never have to pay full price for anything. There are just too many

ways to avoid doing so. You can buy clothes and small appliances at second hand

shops . You can often get free furniture on your local Facebook Freecycle groups.

You can get restaurant discounts at Daddy's Deals or other voucher sites . . You can

find a wine store that gives discounts when you purchase a case, sometimes as

much as 30% or perhaps go directly to the farms.

Spend five minutes googling for discounts on whatever it is you want to buy, and

you will almost certainly find something.



6. You Don’t Ask For Help

I don’t mean you don’t ask to borrow money. Lending money is later on this list as

a mistake. Whatever problem you’re having, credit card debt, you don’t know how

to make a budget, you bought a new car, and now you can’t afford it, I guarantee

at least one person you know has had the same problem. And if no one has,

(they’re lying) Google is kind to those in need.

I understand that money is a taboo subject and there is a lot of shame when

you’re struggling. There is so much help out there! There are numerous companies

that are there to give counsel and you don't need to pay for the coaching or

guidance. People understand that times are tough. There are always people

needing help and people wanting to provide it. The problem is so much worse

when it’s trapped in your head. Tell someone and let them help you.

7. You Always Choose Money

Money should never be the only consideration when making a decision. It’s up

there, but it shouldn’t be alone. Some things are more valuable. Yes, if you take

the R1 000,000, eighty hours a week job, you will have money. You may also

have no sleep, no exercise, no social life, and no kind of life.

Sometimes perks are more important than salary when weighing job offers.

Good health coverage, a good pension, family leave, the ability to work from

home sometimes. Those things matter too and may even keep more money in

your pocket.

If you take the higher salary but have to pay loads more in tax, and you spend

two hours a day commuting, the greater number on the offer sheet can dwindle

pretty quickly.



8. You Don’t Ask For A Raise

The raise fairy doesn’t flit around the office just handing them out you know. If

she does, it might just be the crummy 2% raise everyone gets which doesn’t even

cover inflation. No, you need a big increase, so you’re going to have to ask for it.

Here's a step-by-step guide to asking for a raise.

1. Choose the right time to ask

It’s not uncommon to want a raise. In fact, in a recent Indeed survey, only 19% of

people were comfortable with their rate of pay. However, when you do ask for a

raise, you need to carefully choose your timing. Ask yourself these questions as

you’re identifying the right time to ask for a raise:

- How is the financial health of the company?

- How is your boss' workload?

- When is the best time of year to ask for a raise?

- Have you successfully completed a significant task or p

2. Get salary trends

Do a little online searching or even give a recruitment agency a call to find out

what a reasonable salary you can expect and if your specific profession and

experience level can accommodate an increase, and if so, how much you can

reasonably ask for.

3. Set a meeting

Do not ask for a raise without setting an appointment on the calendar first. The

best setting is a room with a closed door. Don’t discuss it in workplace common

areas, such as a kitchen or hallway. If you can avoid it, don’t ask for a raise in an

email.



4. Prepare what to say

As you’re preparing, it may be helpful to recognize that feelings of fear and

anxiety are natural when discussing money. Writing and practicing a script is one

way to manage those feelings.

If you rehearse it enough, you’ll be able to stick to it even when you’re nervous.

Throughout your script, focus on the professional rather than personal reasons

why you deserve this raise.

Pro-tip: Throughout your pitch, avoid words that could undercut your position,

such as: believe, feel, think, just, only, might. These words can make it seem that

you are not feeling confident or sure—and if you convey uncertainty, your

manager may become uncertain, too. Go into this conversation knowing that you

deserve a raise and communicate your confidence with strong words that leave

little room for negotiation

5. Be ready for questions

If you’ve asked for a raise at a good time and given evidence that you deserve to

be paid more, you should expect your manager to give your request careful

consideration.

You can expect them to ask you follow-up questions, such as inquiring about the

details of your recent accomplishments or the salary research you’ve done.

You can also expect there to be some negotiation. Listen carefully to how your

manager responds to your request. If you feel intimidated at any point, return

back to your evidence to strengthen your case. Ask your own questions to

understand where they’re coming from. Phrases such as “Can you tell me more

about…” and “What I’m hearing…” can create space in the conversation for more

understanding.



6. Thank your manager

Regardless of how the conversation went, end by thanking your manager for their

time. Later that day or the next, send them a follow-up email that recaps your

reasons for asking for a raise and includes a summary of the conversation you

had.

If your manager needs to ask someone else about your raise, this email will make

it easier for them to have a conversation on your behalf. If they reject your

request for a raise, this email can serve as a record of the conversation. You may

decide to request a raise again at a later date, and you can reference this email at

that point.

9. You Don’t Change Jobs

Even if you ask for a raise and get a nice one, it’s likely to be nowhere near the

bump you could get if you switched companies. And you should probably be

doing it often, every two years in fact.

People who stay in a job longer than two years will earn an average of 50% less

over the life of their careers than the job jumpers. If you’re happy in your job, it

doesn’t hurt to see what else is out there and how much you could get. If nothing

else, it gives you some negotiating power when you ask for a raise.

Q: Why did the can crusher quit his job?

A: Because it was soda pressing.



10. Do You REALLY Have A Good Enough

Reason?

This one applies to lots of things, going to college, getting married, buying a

house, having a kid. Those can all be wonderful things, but they’re not for

everyone.

Why are you going to do those things?

Because you’re “supposed to?” According to whom? Society, your friends, your

parents? None of those are a good reason to make major life decisions. If you do

something, do it because you want to do it and because it’s a good decision. For

you.

11. Buying A House

This is another one where the non-monetary benefits can outweigh the

monetary negatives. If you have a family, putting down roots is important. If you

have kids, buying a home in a good school district can make sense.

But as mentioned above, it shouldn’t be something you do just to check off

another box on the “Stuff Grown Ups Do” list. Remember when we talked about

making better money through changing jobs?

Well, the better job might not be in the same town, state, or even country you live

in now. Having a house ties you down to a place in a way renting doesn’t.

Owning a home, at least, to live in yourself, may not be the best financial choice.

If you want to own a home, consider buying one to use as rental income.



12. Buying Too Much House

Even though the average plot and home size has decreased over the past few

decades , it may still be tempting to buy the biggest home possible. This may not

be the best plan if you're buying to live in. If you are financially smart you'll want

to keep your family small. And the more room you have, the more 'stuff' you will

buy to fill it up, compounding the problem.

Just because you’re approved for a R 3 000 000 mortgage doesn’t mean you

have to spend that much. If you decide to copy Jacob Zuma and have a

'Quiverfull' family, then you can always upgrade to a bigger place.

13. You Have No Idea How Much A Kid

Costs

I’ll tell you. It costs as much as R 90 000 per year (or as much as

R 30 000 000 in total) to raise a child to age eighteen, so that isn’t including the

cost of college.

Of course, that’s over the course of eighteen years, and no one makes you leave a

deposit to have a baby. And babies and kids don’t need all the stuff that some

people buy. Brand new clothes that will fit only in a few weeks, you can buy used

ones. All sorts of fancy toys, little kids can devise their toys and entertainment.

What I think a lot of people don’t consider is the cost of daycare. Daycares can

range from R 2 000 - R 5 000 a month.

This is something to seriously consider. You might assume that you will have more

money if both parents return to work after a baby, but that might not be the case.



14. You Don’t Teach Your Kids About Money

Well, you’re going to have to because schools mostly don’t. And you need to start

young, around the age of three because, by the time the kids are seven, their

ideas and habits surrounding money are largely in place.

If you instill good money habits in your kids, you can set them up for a lifetime of

success and save them so much stress and heartache. We’ve all said to ourselves,

“If I knew then what I know now…” You can make sure your kids don’t ever have to

say that futile phrase, at least, when it comes to money.

15. You Lend Money

This one is so hard. Hopefully, anyone in your life so bold to ask for money is

someone you love and not some random in-law you only see at holidays. You can

tell those people to get lost; it’s harder when it’s someone you care about.

But it’s such a bad idea, for the same reasons cosigning a loan is a bad idea. If you

don’t get paid back, it might be the end of the relationship. Even if you write it off

as a loss and don’t hold a grudge, the borrower may avoid you out of shame and

awkwardness.

This doesn’t mean you can’t help, though. Perhaps they have exhausted every

other option before coming to you, but probably not. Maybe they can get a loan

from some of the more friendlier loan channels . Maybe you can help them figure

out a side hustle.

Maybe they have money coming in but don’t budget so don’t

realize how many relatively painless cuts they could make to keep some cash.

If every option has been explored and you are their last hope, you have a decision

to make. Good luck.



16. Cosigning A Loan

There are some good reasons to do this but not many. In fact, I couldn’t find one

that I thought was a good enough reason to convince me to do it so I’m not going

to tell you that you should. I’m always looking out for you.

Plenty of good reasons not to do it, though. If the person is late or misses a

payment, your credit score can take a ding. If they default, you’re on the hook. If

either of those things happens, it will likely destroy your relationship with the

person you cosigned for. Not worth it.

17. Using Retirement To Pay For College

I know you want to help your children get an education and there are ways you

can do that, help them apply for grants and scholarships, start a 5-year savings

plan (such as an Endowment), talk to them about various options like attending a

more affordable online college for the first year or two.

What you should not do is raid your retirement savings to pay for it (if you're even

allowed to due to the highly restricted retirement legislation in South Africa). Your

kids have a lot longer to work and pay back college loans if they have to take

them out than you have to work to fund your retirement. They will not thank you

if you have to move in with them because you can no longer work but don’t have

enough money to live on.

The question isn't at what age I want to

retire, it's at what income.

~ George Foreman



18. You Pay Too Many Fees

You’re probably diligent about making sure you don’t pay things like ATM fees, late

fees on bills and credit cards, and checking account fees. That’s great; you should

avoid fees when you can. But those fees are nickels and dimes compared to

where you might be losing money on fees.

South Africans pay on average 3% in investing fees every year. Individually, we

will lose about one-third of our retirement savings to fees. Never forget that

getting the lowest fees and ensuring there is COMPLETE transparency and no

hidden costs is one of the most important parts of investing.

19. You Don’t Re-Evaluate

Too many financial advisors advocate set it and forget it investing because you

have more interesting things to do than babysit your money. But there are certain

times where you need to take a look at your investments and tweak them to fit

new circumstances.

If you have a baby, you need to start estate planning . If something happened to

you and the other parent, your child could be a ward of the state. If you get a big

bump in income, don’t upgrade your lifestyle, improve your investing. Especially if

that increase is going to bump you into a higher tax bracket.

As you near retirement, you don’t have enough time to ride out the ups and

downs of the market. Re-balance your portfolio, so you’re less heavily weighted in

riskier investments.



20. You Stay Put

Do you have a four bedroom house but all of your kids are gone, and you don’t

need all that room anymore? Are you unhappy with your job but can’t find

something else in your area? Are you retired but the cost of living where you are is

burning through your savings?

You don’t have to stay put. You may have good reasons for doing so, your home is

paid off, and the property taxes are low, your kids are in a good school district,

you live near family and don’t want to move. But if you don’t like where you are,

it’s a great big world out there.

21. You Don’t Enjoy Your Money

There are two types of people who appreciate good financial advice; those who

need help with money and those who are good with money already. This is for

the second group. My grandmother was one of you. Sadly, I didn’t inherit that

gene. She worked hard, saved hard, lived all her life modestly. She was a kid

during the Depression which is when I think a lot of her attitudes toward money

were formed.

She was so afraid to be without money that she was scared to spend it. Not of her

family, she was always really generous, but to herself. She dearly wanted to visit

Spain, and she could well afford to.

But she was too afraid to spend the money. And now it’s too late. She passed

away without ever getting to go on that trip. And all the money she worked her

whole life for went to her next of kin who promptly blew.

Don’t let that happen to you. Live and enjoy your life. There is a happy medium

between the two types.



22. You Think That 'Familiar' Is The Best

If this mindset made sense, then we would never have moved out of the caves,

we'd never have transitioned from horseback to cars, and we'd still be using

leeches and bloodletting or casting out demons as the 'go to' in medicine.

After ten years in the financial services industry, I have come to realise that

almost 99% of financial advisors know only half of what is available in the

market, and this leaves almost every person in South Africa at a major

disadvantage. Perhaps YOU are one such person that is financially suffering

because they are stuck in the past, getting outdated benefits and guidance.

Case in point, most people don't realise that there is an investment option

available that provides a return of Prime lending rate plus 5%, with lower risk than

putting your money in a bank account, and with no loss through fees or

commissions. But yet there are a handful of people making excellent returns on a

almost-zero risk base.

There are some people who are investing what would have traditionally gone to

SARS as income tax, into a SARS-approved investment, thereby turning their tax

into an investment. No, that isn't a typo. They are investing their tax and SARS

are happy for it.

There are people that are moving their assets into tax-efficient structures without

paying transfer duties, resulting in a massive reduction in estate costs, thereby

lowering the need for excessive life insurance. All this is done legally, and saves

them hundreds of thousands of Rand.

My clients are enjoying this and a lot more. They realised that financial products

and solutions change and evolve, and that is why they are experiencing the future

while you and everyone else is stuck in the past.



Own Your Mistakes

Some of these are big, and some are obvious, not paying yourself first or not

having a plan to tackle debt, for instance. But some of them are really surprising

to me, how much we lose in investing fees and how much more lucrative it is to

job hop. Which goes to show, even if you think you aren’t making any mistakes,

you might be wrong.

I'd like to show you a brighter tomorrow and hold your hand so that you too can

rid yourself of some of these money blunders.

As the old saying goes "you can take a horse to water, but you can't make it drink",

and this is more true here than ever. Sadly the horse that doesn't drink dies, and

the person that doesn't make the necessary changes is doomed to financial

mediocrity at best.

Right now you can put this book down and ignore the call to financial

awesomeness, or you can get in touch with me and I will show you the lofty

financial heights that you can attain, and like some many of my clients, you too

can join that lucky 0.1% of South Africans that are financially brilliant.

For more, and to see if you qualify for financial freedom, go to

www.stevehughes.co.za and you can Whatsapp or email using the details and

features there.

Living on earth may be expensive,

but it includes an annual free trip around

the sun.


Stop making silly financial

mistakes and become a

money-master TODAY!

Steve Hughes is an award-winning independent financial advisor and the

founder of the PLATINUM EDGE financial model.

When he is not coaching his clients to wealth mastery, he can be found either

creating new business models (his hobby) or spending time with his amazing

family in gorgeous Cape Town, South Africa.

If you would like to fix some of your financial blunders, or find out how the rich

get richer, go and get in touch. You really only have something to lose by NOT

getting in touch with him.


Financial Mistakes You Are Making Right Now

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