Money Mistakes You Need to Avoid

We manage money every day. There are always debts that need to be cleared, commitments that need to be paid, and things that we dream of buying.

Managing money can seem very stressful as we have always needed more, as we feel what we have is insufficient.

However, did you know that managing money is also an art? You must learn and master the art of managing money wisely.

So, how do we manage money with the right art, and what mistakes do we often make? We share a few mistakes you should avoid to manage your money wisely.

1. Spending Beyond Means/Income

This is one of the main reasons our money is 'just enough' every month, and we get stuck in long-term debt. To avoid spending beyond our means, we need to know how much is our monthly income before spending and securing any debt.

The most important thing to monitor is the debt we take on. One of the main reasons we build up debt without even realizing it is when we spend using credit cards, especially when we buy things we can't afford.

So be careful in spending, make a budget to monitor expenses, and ensure the spending limit is adhered to. Failure to monitor expenses will have a long-lasting negative impact on the financial position.

Remember that you cannot afford to spend more than you earn, and get used to investing first before spending.

2. Money is left in the Bank Savings Account for a long time

Most of us receive our salary in a Savings Account. We will start paying debts and spending on necessities as soon as we get a paycheck. What do we do with the rest of the money?

Many of us leave the money in the Savings Account. The main reason is that it is easy to use when necessary. Over an extended period, the amount of money in the Savings Account accumulates, and so does our spending.

Do you know that the money left in the Savings Account is actually sleeping because it does not give a return? So it is better to invest this surplus money, for example, in ASB or fixed deposit.

Savings accounts generally only give a small return, which is less than 1 percent.

Suppose this money is invested; for example, we may receive a 4-5 percent return per year in ASB, depending on the fund's performance.

This will help us protect the money's value from inflation and allow it to grow through the annual returns. ASB's unique feature will also enable investors to withdraw money anytime.

If the money did not generate a return better than inflation, the money we save in the Savings Account can no longer afford to buy a cup of coffee at today's prices.

As such, you should invest any excess income to protect its value and discipline yourself from spending beyond your means. A better way is to invest first before shopping.

3. Money Invested is Often Withdrawn

Investing should be long-term and only withdrawn once the goals have been set or due to necessity.

That's why we need to set an affordable and comfortable amount when investing, especially if we engage in monthly automatic investments.

If the investment money is withdrawn frequently, the investment will not give the promised or announced returns. Fixed deposits, for example, set an investment for a year for a return of around 3-4 percent.

If the money is withdrawn before the period in question, the return received is lower, and some banks even charge a penalty.

So is ASB, which sets dividend payments based on the minimum monthly balance. This means that any movement in or out of money each month will affect the return you receive.

So, when investing, you need to set a long-term commitment instead of spending investment money on a whim to meet your spending needs.

It is actually better for you to invest RM100 a month than RM300 a month but withdraw it at the end of the month.

4. Overusing Credit Cards for Spending

A credit card is a loan facility that is very easy to have. Hence, many people use the credit card facility excessively and need to understand the terms and conditions of its use.

Most users only pay the minimum to keep the card active, and this causes the existing debt to continue to increase each month due to the interest charges. This debt grows each time the card is used, and we continue to pay only the minimum amount set.

Whether you realize it or not, the credit card debt has piled up to tens of thousands of ringgit, and we have no ability to pay it.

When debt mounts, most of our income is tied to paying it off. If we are delinquent, it will affect CRIS and CTOS records and make it difficult to make good loans, such as buying a house.

If used correctly, a credit card will positively assess your financial position, but if not, you may have to pay off the debt before obtaining approval for another debt.

The tip for using a credit card is to use it only when we have cash available to finance the purchase within two weeks from the date of purchase to avoid paying interest charges and penalties if we exceed the allowed period.

Remember, outstanding debt will incur interest charges when repayment is delayed. If we delay paying back the financing, we might pay RM3,000 for a handbag bought at RM1,000 just because of the interest rate.

5. Buying a Car Beyond Your Means

Car loans are among the loans that cause many young people to go bankrupt. This is because many people buy cars beyond their ability to pay monthly installments.

You might think that you deserve to buy your dream car as, on paper, you are qualified, but real-life commitment is different,

You are qualified to buy a car worth RM150,000 based on your salary. Still, the affordability does not consider commitments such as insurance, fuel, service costs, and so on that may arise from using the car.

In the first year, we might not feel the burden, but from year to year, when our commitment increases, we will start to feel the burden.

The best way is to start buying a vehicle that only takes about 30 percent of our salary, even if we really need the vehicle.

6. Not Understanding the Power of Compound Interest

In money management, whether borrowing or investing, we need to understand the power of compound interest.

The famous scientist Albert Einstein once said that if we understand how the power of compound interest works, we will enjoy its benefits, but if we do not, we will always be at a loss.

This is because the concept of the power of compound interest will grow our investment capital if the money and dividends are not withdrawn for the long term.

But in debt, when the original debt and interest charges are not paid off, it causes the debt to keep increasing year after year.

So, you must understand the concept of compound interest to manage your money wisely.

In investments, invest consistently and maintain dividends for the long term to build savings, while in debt management, you need to pay off the debt immediately to avoid it accumulating.