Financial mistakes to avoid starting today!

Yes, we're human, and it's only natural we make mistakes. But some mistakes can literally cost us money. That's why it's important to identify and learn from our mistakes to secure a bright financial future and build a healthy relationship with money. 

Because we work at Bank al Etihad, we see firsthand how people manage their money. And because we're fluent in money, we always try to guide people on how to make sound financial decisions. That's why we're sharing some of the misconceptions we often hear and their relevant corrections.

1. "I don't need to create a budget...my salary lasts until the end of the month"

You won't believe how many times we've heard this sentence! But believe us, if you fail to plan, you are planning to fail! Creating a budget will help you reach your financial goals. The purpose of a budget isn't only to ensure that your salary lasts until the end of the month. It's also to allocate an amount to savings every month. 

Having a hard time creating and sticking to a budget? Find the method that matches your personality here.

2. "I will start saving once my income increases"

Postponing saving is a grave mistake that you must avoid at all costs! We know that life can be full of bumps, but that's why seat belts exist! In this context, the savings you build over time are your seat belt. Whatever your income, allocate an amount at the beginning of each month, put it aside in a savings account, and start earning interest. 

Don't have a savings account? Open one today!

3. "I like to live in the moment without worrying about the future"

Your current financial decisions will set up your future economic situation. So, unless you're a 10-year-old, you must think about the future! And if you have a financial goal you want to reach in 5 years, you must start working on it today. If you dedicate a few hours of your day to watching TV or browsing social media, you can dedicate a few hours during the week to planning your future. 

4. "I'm too young to invest"

If you think you're too young to start investing, you're wrong! When it comes to investing, time is of the essence. And the more time you have and the earlier you start, the bigger your returns could be.

And don't say, "I don't have enough money." Investing isn't only for the rich. It's also for those who want a better financial future. The small amounts you invest now may help you earn big in the long run. 

Speaking of which, have you heard about Bank al Etihad's auto investment plan? 

5. "I will postpone the loan payment. What's the worst that can happen?"

Postponing a loan instalment (or multiple) may relieve you in the short term, but have you thought about how it will affect you in the long term? Let's tell you how. The principal portion of your monthly payment will be distributed over your upcoming instalments. However, the interest portion will accumulate into a large payment, known as a balloon payment, that you will have to pay at the end of your loan. So, don't postpone your loan payments unless you have to. 

6. "I'm earning a higher salary now. I can take out a third loan"

Just because you can take out more loans doesn't mean you should! You should prioritise how to pay off your existing debt faster, not add to it. You can do so by allocating a larger amount to paying off debts like your credit card balance and loan repayments, and stop borrowing money until your current debts are paid off.

7. "My debts aren't going away, so why should I pay more than the minimum?"

Sometimes, it may feel like your debts will follow you forever, and you can't get rid of them. While your debts won't go away on their own, you can pay them off faster by paying more than the minimum every month. Create a budget to help curb your spending and allocate more money to pay off your debts. 

Need more guidance? Here are 5 tips to pay off debt.

8. "I have a credit card. I don't need an emergency fund"

Your credit card can save you in many situations. But what if your credit limit isn't high enough to cover an emergency? Also, don't forget that being unable to pay your credit card balance will make you subject to interest and hurt your credit history. So, be sure to save 3-6 months' worth of living expenses in an emergency fund to cover unexpected costs.

If you're guilty of committing one or more of these financial mistakes, it's okay. We all make mistakes. But the important thing is that we learn from our mistakes and those of others. Now you know which habits to avoid to prosper financially!