The 10 biggest money mistakes

One of the worst is leaving yourself financially exposed to traumatic events.

If you're smart, over your lifetime a deliberate trickle of 'me' money will become a big personal pool of cash – which you can then happily splash. But, all too often, slip-ups along the way instead drain a fun fund.

Here are the 10 biggest:

1. Not designating 'me' money

Seems a logical place to start! The old money mantra is squirrel away 10% of your salary – and that's a good base amount.

Pay your 'future' self first via an automatic transfer the moment your salary is credited. Otherwise, I guarantee the money will be gone, probably with nothing to show for it. Instead, you could invest this for the long term.

2. Having no emergency fund

This is the quick cash specifically earmarked for stuff going wrong. Because, at some point it will. You should have at least three months' income in reserve; six is better. And if you have a mortgage, house this in an attached offset account so it slashes your interest in the meantime. Without an emergency fund, you are dicing with debt.

3. Frittering your future

Spend now, pay later might be the way of the modern world, but anything you spend now – unfunded – will curtail your ability to spend later.

The more you commit to debt repayments the less you'll have left to live – and this can quickly become a downward spiral. Save don't cave, particularly when it comes to astronomically expensive credit cards.

4. Being a bill DIL

Cleverly setting up direct debits for all your utility and insurance renewals? Stop. These companies routinely hike bills and premiums for existing customers to fund discounts for new ones – and if you succumb to Digitally Induced Laziness (DIL), you probably won't notice. Get SMS reminders instead.

5. Choosing mates over rates

You might recall a friendly bank manager or be nostalgic for school banking, but sticking with their sub-standard products could cost you a year's salary (or more). Take a $400,000 mortgage – with a big four bank the overall (discounted) interest bill is $269,044; with the best lender, it's $191,138 (4.53 versus 3.35%, according to Mozo).

6. Letting money languish

This is about any savings (those you don't want subjected to investment risk). Keep them in the highest interest account you can find … unless you have a mortgage. Like your emergency fund, this money should be in a mortgage offset – you can usually get multiple offset accounts attached to the one loan, if you're worried about mixing up money.

The cash rate today is a paltry 1.5% – and you'll pay tax on earning. The 'effective' return from the mortgage is your interest rate – and this will be tax-free. It's a no-brainer.

7. Ignoring insurance

None of us likes to think about the worst happening, but one of the biggest mistakes is leaving yourself and your family financially exposed to traumatic events – we're talking death, disability or disaster (natural, fire or other).

Get properly insured for each. Additionally, income protection insurance is vital – if you think about it, it's your most valuable asset.

8. Coasting for calamity

Ask yourself: what do I really want for my life? To live overseas? To only work part-time? To drive a Ferrari? Without crystallising a precise purpose, scrimping and saving – well – sucks. Figure out not just where you want your money to get you, but exactly when. You need strong motivation to resist instant gratification … so get it.

9. Falling for hype

It's so seductive to believe there is an easy way to make a lot of money. There ain't. But there are sure fast ways to lose it. Be cynical about, and even suspicious of, anyone spruiking a great money-making venture, especially if it's complicated. Even a friend confiding a hot share tip.

10. Getting defeatist

My work with high school students has made me concerned a generation is giving up on securing financial freedom. There is such despair at property prices, in particular, that the attitude is: "I can't succeed so why would I try?".

Remember, the younger you start saving, the cheaper and easier it is to get ahead – just $6 a day invested at an 8% return from age 20 becomes $1 million by retirement. What's more, not all property 'dreams' look the same.

This article was originally published by the Sydney Morning Herald on 24 August 2016. It represents the views of the author only and does not necessarily reflect the views of AMP.

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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.