10 Foolish things to do with your money

Splurging every once in a while does one good, if you are able to afford it. But carelessly splurging on things that you don’t need could see you in a pickle at a later stage.

Ahead of April fool’s Day on the 1 April, Moneybags journalist, Danielle Van Wyk, looks at 10 foolish ways in which you can spend your money in the current economic climate.

1.Taking out credit to pay off a loan: There are a few signs and financial indicators that reveal that you are headed into financial trouble. This is one of them, revealed FNB head of financial education, Eunice Sibiya. “Taking out a loan to pay off alternative credit is a sure fire indication that your finances are in shambles,” says Sibiya.

More often than not this sees you digging yourself further into a debt pit and mounts additional financial pressure on a situation that is already indicative of money mismanagement.

2.Purchasing a vehicle you can’t afford: For many a car is an essential in maintaining their lifestyles. That being said, it is more often than not a purchase that is based on extra features and desired status, as opposed to what makes the most financial sense.

“The ‘ideal’ car you want today might not be the ‘ideal’ car that suits your lifestyle or your financial situation in five years’ time,” stated Wesbank.

It is always advisable to buy with the long term in mind, taking into account the potential interest rate increases and lifestyle changes that may occur. Also, do not buy a car with a balloon payment attached, particularly if you’re not sure whether you’d be able to pay off the last large installment in one go. If you can’t pay off a balloon instalment then rather not choose this option as it may leave you with no choice but to refinance your car loan, leaving you even further in debt.

3.Going on an overseas trip: Traveling is one of the most enriching experiences, but one that also takes careful planning, both logistically and financially.

Simply delving into your savings and hopping onto a plane to explore on a whim, can be seen as reckless and a decision that could harm you financially in the long run.

4.Buying expensive property: The decision to buy property is an investment and one that can see you benefitting for years to come, but it is also one that requires careful evaluation.

We are currently in an economic downturn where many are increasingly struggling to make ends meet.Rates are also increasing, which means it would be foolish to think you can afford a home now and all the costs associated with it while not factoring in any rate hikes in the future and the financial impact that would have on your household budget.

Choosing to take out a bond is a big decision that has serious repercussions for your budget, so it is wise to make sure that it is a price you can comfortably afford now and in the future.

5.Living on credit: “Think about what you buy very carefully.  Don’t be tempted to take on debt to buy expensive clothes or luxuries,” warned Sibiya.

“You may think you need to keep up with your new work colleagues or your friends at university, but it is not worth it. There will always be a new outfit or items out there, but the money you earn is precious, use it wisely and later on in your life, you will have had a big financial head start.”

Don’t use credit to fund grocery shopping- it is never a wise decisionas repayments will put you in a bind, resulting in further use of credit.

6.Failing to budget: “One of the most important aspects of financial management is understanding how much money comes in and how much you spend,” stated Sibiya.

Failing to assess your income versus your expenses can see you coming up short at the end of the month. It could be the odd R25 spent on that cup of coffee every other Wednesday morning or the R200 restaurant treat that you don’t account for that could see you struggling financially.

Though small, these purchases have the potential to amount to a significant sum of money at the end of the month that many can ill afford.

“Once you understand what you spend your money on draw up a budget. It is a simple way of keeping track of what you spend each month,” reiterated Sibiya.

7.Failing to save: The mention of the word ‘save’ has many despondent, as the concept of putting money away versus splurging on all your needs and wants now is difficult.

This is a trap that many people fall into, as they are of the opinion that they can’t afford to save.

However, should the unforeseen occur they are left in a financial fix with no savings to tap into or fall back on.

If you save, your savings could bail you out of financial emergencies. If you don’t save, you’d be forced to take out expensive loans.

8.Not maintaining your vehicle: Servicing cars is not something many people, in the absence of a service plan, do regularly because of the expense and inconvenience of it all.

The downfall of such an attitude, however, could see you stranded on the side of the highway with a broken down vehicle, having to fork out thousands for the repair, towing and storage. This could be avoided if your car gets a service regularly.

A vehicle is an investment and should be treated as such. Factor in a service in your budget so that you can rely on your vehicle.

9.Living above your means: Keeping up with the Jones’ is an age old saying that has only become more prevalent as time has rolled on. The notion of having to compete with friends and family to maintain a certain lifestyle that sometimes you can ill afford is a reality.

“In a middle class existence, expenditure follows income. More middle class trimmings follow a middle class existence. What was good enough before is no longer good enough. And definitely not good forever.

“And with what is good enough, often comes debt. Middle class people borrow money to purchase things associated with middle class existence,” reported the Mail and Guardian in an article about ‘Why reaching and staying middle class is a lifetime challenge’.

This often sees families going into a downward debt spiral that just rolls on from year to year and sometimes generation to generation.

The trick remains to rather comfortably live within your means.

10.Ignoring to check your credit report: The pulling and checking of a credit report, for many is still a foreign concept. Instead, many just incur further debt, without checking to see the status of their financial situation on their credit report. It’s only when a loan is denied that questions are asked and this is often when financial problems, which are hard to get out of, arise.

With interest rates hiking and household expenses increasing, South Africans can ill afford to mismanage their money.

Avert foolish and reckless spending and lending by learning to live within your means and saving for those rainy days when you need a bail out. Anyone can make a foolish decision with money but it’s even better if you learn to do something about it to ensure that the mistake is not repeated.