Money mistakes: Five big ones to avoid this year

Financial errors can be costly, especially if left to multiply. Watch out for these five mistakes.

Being careless with credit is a costly money mistake. Picture: iStock

Anyone who tells you they have never made a financial mistake is lying.

Some people lose mountains of money through poor investment or debt decisions, fraud or gaps in financial knowledge, while others dent their wealth by paying too much for items or missing out on the best deal on their bills or other expenses.

Every lost dollar adds up, and every money mistake is a learning tool to help stop it from happening again.

As household budgets buckle under the weight of higher living costs in 2023, it pays to understand these common money mistakes and how to avoid them.

1 CARELESS WITH CREDIT

Debt can destroy household wealth, especially after 2022’s surge in interest rates, and people are being urged to understand everything they owe, the costs being charged, and have a strategy to handle future interest rate rises.

Sort My Money founder David Rankin says if you don’t plan repayments properly you may end up in an “ongoing debt spiral”.

“You should only have a credit card if you’re confident you have the willpower to avoid temptation,” he says.

“And you should only have direct debits come out of a credit card if you stay across these debits every single month. Otherwise, credit cards and direct debits are a combination best avoided.”

Sort My Money founder David Rankin suggests sleeping on big money decisions.

2 IMPULSE SPENDING

Avoid making instant financial decisions, Rankin says.

“Research shows that impulsive commitments are associated with poorer mental and physical health – and wealth – outcomes,” he says.

“By sleeping on big decisions and talking them through with someone you trust, you’re more likely to make choices that are in your own long-term interests.”

3 SCAM SUCKERS

The horde of scammers constantly attacking Australians’ phones, computers and social media accounts looks unlikely to subside soon, so a good strategy to avoid being caught out is to automatically assume every unsolicited message you receive is a scam.

Never click on links unless you are certain they are legitimate. Ignore them or approach the business or government agency through their legitimate website or contact number.

Cybersecurity company Proofpoint’s Steve Moros says the recent spate of high-profile attacks – such as those on Optus and Medibank – highlights the consequences of cyber-criminal activity.

“Email is a widely used marketing tool and therefore a popular channel for cyber criminals to leverage to conduct large-scale phishing campaigns to steal personal information or credit card details that can then be used to engage in identity and financial fraud,” he says.

Proofpoint recommends using strong and unique passwords, watching out for lookalike websites that pretend to be familiar ones, being wary of phishing emails and “smishing” messages via SMS and social media, and avoiding clicking on links – instead typing a known website address directly into your browser.

Tribeca Financial’s Ryan Watson says patience will be rewarded. Picture: Supplied.

4 MISGUIDED LOYALTY

Many Australians pay a loyalty tax to home loan providers, insurance companies and energy retailers because they fail to shop around for better offers.

Companies often give their best deals to new customers to try to win them over, because many consumers will then stick with the same company even if it is costing them money.

Tribeca Financial chief executive officer Ryan Watson says do not just trust your mortgage provider.

“After 12 month or so they will start taking advantage of your by jacking up your interest rate,” he says.

“Hold them accountable by working with a trusted mortgage broker to get you the best deal.”

Comparison websites and competitors’ websites can help consumers work out whether they are wasting money by paying too much.

5 EMOTIONAL INVESTING

Shares and property lost value during 2022 and there are forecasts of more weakness in 2023, some warning of heavy falls as the world struggles with higher interest rates and possible recessions.

Watson says financial markets could face significant headwinds this year.

“The financial trap to avoid is selling down investments in a depressed market,” he says.

“Hold your nerve – history tells us that investments markets invariably bounce back.

“Try to take the emotion out of making financial decisions. Revisit the financial goals you have set and then review the strategy you have taken in order to achieve them. Finance decisions and emotion rarely mix well … it is the patient who are often rewarded.”

Originally published as Money mistakes: Five big ones to avoid this year