How to avoid common money traps

Most of us try to avoid wasting money and we've all heard the same warnings before, like the pitfalls of having multiple super accounts, not doing your tax return, losing control of your debts and spending outside of your means...

But these aren’t called traps for no reason – some of these mistakes can cost you a lot of money and could risk your financial credibility.

If you want to keep on top of your finances, here are some tips to consider:

Have one super account

If you’ve got more than one super account, you’re likely to be paying multiple fees which can add up to thousands of dollars. By combining your super accounts into one, you’ll save time, paperwork and money. 

Make sure you check for any exit or withdrawal fees and whether you can transfer any existing insurance over to the new fund.

You can also search for lost super that you might have lost track of or you didn’t know you had to give your super balance a boost.

Do your tax return when it’s due

When life gets busy, it’s easy to avoid doing your tax return on time. The problem is that if you let it go for too long, it can become a financial burden – not only does the ATO charge penalties for being late but they also charge interest on unpaid tax debts1

If you do your tax return as it becomes due, you can avoid penalties and feel more in control of your finances. Who knows? You might even be due for a tax refund! 

Use rent-to-own plans wisely

Rent-to-own services offer an easier way of acquiring items like a new laptop, TV or fridge, rather than buying it outright. 

Read the contracts carefully; fees and interest charges may result in you spending more than the cost of the item outright. And if you don’t make your payments on time, you could end up having to return the computer and lose any money you’ve put into making the repayments. 

If this is for a work-related item, find out what options you have for claiming repayments on your tax return. And if you just need something that does the job, check out websites like Gumtree – one man’s trash is another man’s treasure. 

Avoid payday loans

We’ve all seen the ads on TV, “smart little loans paid in less than 60 minutes” and with pay day a week away and bills to pay today, these quick little loans can seem like a real lifesaver.

After all, it’s only for a week, right? Maybe not.

Some providers can charge the maximum interest rates allowed by law2 and you’ll often get hit with additional charges like an establishment or administration fee. You could end up paying more than if you had just waited until pay day.

Be smart with your credit card 

Credit cards are a great way to pay for purchases but the trick is to ensure you stay under control. 

Try to keep to one card to save on annual fees and don’t just pay your minimum—try and pay as much of it as possible to avoid incurring interest. Also, cash advances may sound tempting but often have higher interest rates and withdrawal fees. 

Part of staying in control is making sure you’re not overextending yourself; try not to increase your limit unless you really need it. 

Don’t forget that most banks will offer a debit MasterCard or Visa card, these have all the online or tap-and-go features of a credit card but you’ll be drawing on money in your bank account so won’t go over your cash flow limit.

Don’t spend more than you earn

We’ve all had that month where your costs have far outweighed what you’ve budgeted for—it can happen to everyone. 

The key is to avoid getting into the cycle of constantly playing catch-up, having the occasional blowout is okay but it should only be for a short time and you will often need to work harder next month to catch up. 

Creating (and sticking to) a budget can help you prepare ahead of time for the periods that tend to blow your budget. 

Want to know more?

If you’d like to know more about how to manage your money, try our education module, use our budget calculator or go to MoneySmart’s ‘tame your debts’

Or talk to a financial adviser, good advice can make a big difference to how quickly your financial position improves.

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© AMP Life Limited. This provides general information and hasn’t taken your circumstances into account. It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, AMP does not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, AMP does not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.