“Success does not consist in never making mistakes, but in never making the same one a second time.” — George Bernard Shaw

UNLIKE most school systems, life doesn’t give you homework and examinations to determine how well you have learned the skills you need to succeed. In the real world, you can often gauge your progress in accomplishing your goals by the type of results that you are currently experiencing.

When it comes to money, there are many mistakes that can prevent you from enjoying the financial life that you desire. If you keep making the wrong choices, you will only continue to feel frustrated with the state of your finances. Let’s look at some of the common missteps that can derail your financial security.

SPENDING WITHOUT A BUDGET

There are so many demands for your limited income that it’s difficult to know how best to allocate your money. Is it okay for you to have a family night out at the movies, or will this evening of fun actually jeopardise your ability to pay for the children’s school fees and your home insurance later in the year?

To avoid making ill-advised spending decisions, you need to know exactly where each dollar you earn should go each month. Download a budget spreadsheet at financiallysmart.org, record your expected costs over the next 12 months, and calculate whether your income will be sufficient to cover all your bills.

IGNORING THE NEED TO SAVE

With your spending ability stretched to the limit by rising prices, and very low bank interest rates, you might be tempted to think that it’s pointless to save. Even if you have excess income, you may believe that it’s better to try to use that cash to generate some profit instead of putting it into an account.

Despite the low returns on savings, it is still essential to keep some short-term funds for emergency purposes. Without this cushion, you may not be able to deal with major health costs, job loss or natural disasters without incurring debt. Aim to save at least three months’ worth of your basic expenses.

DEPENDING ON LOANS TO PAY BILLS

If your income level is not increasing in line with your bills, you may be under pressure to find ways to meet your obligations. Although they may provide temporary relief, using credit cards or payroll loans to cover a budget shortfall is a big mistake. Borrowing will only make your deficit increase each month.

Although it may seem impossible, you have to make sacrifices to cut your bills in order to balance your budget. If you still can’t make ends meet after trimming costs, then the only option that won’t harm your finances is to try to boost your earnings, for example by selling a product or service part-time.

INVESTING WITHOUT KNOWLEDGE

Once you have organised your finances, it is advisable to look at ways to make your money work for you. However, don’t put your funds into an investment just because your friends are involved in it, or without understanding how to choose options that are appropriate for your situation.

There are many pitfalls in investing, so it’s important for you to educate yourself on the process before committing any money. Research in books or online to learn how different investments can help you to make a profit, and be aware of the various risks involved that could cause you to lose your funds.

STARTING A BUSINESS WITHOUT A PLAN

You might decide to operate a business so you can be your own boss, or simply because you can’t find a suitable job. Although business ownership can help you to create long-term wealth, it can also be a very risky financial step to take, especially if you venture out without a proper plan of action.

Give yourself the best chance of succeeding by testing the feasibility of your business idea, creating a strategic plan which clearly outlines how you expect to generate your income, and ensuring that you have sufficient working capital to support your operations in the early years.

DISREGARDING YOUR FUTURE NEEDS

The continuous struggle to pay bills may occupy all your time, energy and money; but that does not absolve you from thinking about your financial future. Before you know it, years will have passed and you will be in an adverse financial position if you have not prepared for the changes they will bring.

One of the key preparations you need to make right now is a plan to supply income when you retire. Some of what you earn today should be put aside to build a nest egg for the future, and you should also look at investing in assets such as real estate or stocks which can generate income.

Another instance of poor financial judgement is ignoring the need for insurance on your health and life. The cost of dealing with a major illness or accident can wipe out everything you have acquired, so you need to ensure that you are adequately covered for these eventualities.

Once you align all your decisions and actions with the goals you have created for yourself, you will be less likely to make costly financial blunders that will prevent you from achieving your objectives.

Copyright © 2014 Cherryl Hanson Simpson. No reproduction without written consent.

Originally published in The Daily Observer, September 18, 2014

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Cherryl is a money coach and business mentor, and founder of Financially S.M.A.R.T. Services. See more of her work at www.entrepreneursinjamaica.com and www.financiallysmart.org. Contact Cherryl