South Africa is one of the most over-indebted nations in the world. And we’re not just talking about the state of the economy. On a personal finance level, South Africans owe more than R1.64 trillion debt to creditors.
Debt Rescue, a South African debt counselling service provider, said that they’ve experienced a disconcerting growth rate in individuals seeking debt relief – 40% year-on-year. They identify the most prevalent areas of debt as personal loans, credit cards, and store or retail cards.
But, our over-indebtedness is merely a symptom of a route problem: bad money management. More specifically, it’s the consequences of these insidious mistakes people make with their personal finances, over and over.
The 5 Worst Mistakes People Make With Their Money
Most of the time, we know what we’re doing wrong with our money, it just seems so inconsequential. Over time, however, these money no-no’s can devastate your financial well-being, with a ripple effect that can touch every area of your life.
1. Losing Track Of Your Expenses
The reason people become over-indebted is not because they know they can’t afford a new car, or (another) expensive pair of shoes on their account – over 12 months. People become over-indebted because they don’t realise how much they are actually spending on a day-to-day basis.
It’s easy to keep track of your recurring debit orders, but those are not an accurate idea of your monthly expenses. They’re your debit orders. What about those little treats that slip in more often than you’d like? The cappuccino from the place you like, every day, or take-out night, two to three nights a week. Or, grocery shopping when you’re hungry?
Start documenting every expense, even your parking tickets, for just one week. You may be surprised where your money keeps disappearing to. You may also find that you actually can afford to start saving.
2. Not Sticking To, Or Even Making, a Budget
An extension of not tracking your personal expenses, is not budgeting for them. When you don’t plan how you will spend, you may as well plan to overspend.
A budget also does not need to be constricting. There’s a freedom that comes from knowing how much you can spend each week, and that every other expense, like travelling, or paying your domestic, is accounted for. When you have what you can call a weekly allowance, it also incentivises you to carry money over to the next week, a good starting point for building a saving habit.
3. Only Planning For The Present
There’s a current global focus on mindfulness, and being fully present. It’s easy to blur lines between areas in our lives where that’s normal, or even habitual, and areas where it can be unhealthy.
Only living in the present, or planning for now, can really rob us from an ideal future. Be it a year, or a decade from now, planning ahead makes sure you don’t put yourself in a position of financial helplessness.
4. Avoiding The Money Talk With Your Partner
When you make a commitment to spend your life with another person, every individual decision you make becomes mutually impactful, whether it’s intended or not. And, regardless of how you’re married, legally, your finances operate the same.
If your partner is in debt over their head, it will affect you. It will affect your spending power as a couple, and it will affect your quality of life, and your relationship. Especially if it is something that wasn’t disclosed early on.
Over-indebtedness may also be a sign of an unhealthy relationship with money – something that should also be addressed early on in a relationship.
5. Not Having a Goal
Arguably, the worst mistake you can make with regards to your personal finances, is not having a goal. It’s been asked before, but if you don’t know where you’re going, how will you know when you’ve arrived?
If you’re not happy with your finances currently, you have a starting point for what you’d rather have your finances look like.
Take a moment, be mindful, and decide where you’d like to be, specifically, in 10 years, five years, even five months from now. And start working towards that.