Sometimes a money mistake is just that - a mistake. But other times, an expensive misstep can teach you a valuable lesson or lead you to a better way of doing things. Ultimately, even a costly lesson can wind up being helpful if it results in a positive changed behavior.
Of course, if it is possible to learn the lesson without the expensive blunder, all the better. By learning through other people's mistakes here, maybe you can avoid making your own.
Mistake 1: Not reading the fine print
Maybe you're making the right decisions but missed a few details in a contract or plan. That can result in avoidable credit card mistakes and significant missed opportunities.
Say a bank offers you a cash advance on your credit card. You figure you need some extra money anyway, so you take the offer without further thought. Unfortunately, you may not have realized that this type of loan has no grace period: you will literally be charged interest daily from when you withdrew the money until you pay back your debt. Needless to say, credit card advances are done only for emergencies.
Annual fees can be another sticking point with credit cards. These fees don't disappear just because your card is not in use. Say you gain a high enough credit score that you may avail of a no-fee rewards card from a different issuer. But rather than use it, you put the other card in storage and forget about it. A few months later, you receive a statement of account and see that you missed paying an annual fee on the card. Since you never used the card, you did not notice this and neglected to pay on time. In the end, you would have to pay interest on the annual fee plus the late fee.
Relying on automated payments for all your credit card accounts help ensure that you doesn't miss a single payment.
Mistake 2: Not asking questions
When we don't really know a lot about certain financial tools or plans, there's a tendency to rely on the "experts" to help us make sense of it. For example, if you've always wanted to start investing, it makes sense to trust the financial expert—whether it's the portfolio officer from your bank or an insurance agent—regarding the investment. But it is your responsibility to ask questions. If you don't understand the difference between bonds and mutual funds, ask them. You'll be handing over your hard-earned money so best to make sure you know how they plan to grow it.
Mistake 3: Skipping the safety net
It's easy to think that the worst will never happen to you. According to the BSP, "Almost 50% of households reported not holding any cash on hand for emergency and unexpected expenses. For those who had cash on hand for emergency, the average and median amounts of cash holdings were P3,964 and P1,000, respectively."
Preparing for the unexpected is always a good idea. You will need to maintain an emergency fund worth at least six months of savings in case you are unable to work due to accident or illness, or if you find yourself suddenly without a job. Also, if you can live on only about 60% of your earnings, you can sustain yourself in case your income is suddenly reduced.
Mistake 4: Rushing a non-urgent decision
Every Filipino family has its own bad money decision story. From making a hasty real estate choice to simply forgetting you've got a credit card in a drawer, slip ups happen.
Family members of OFWs, for example, may sometimes be a bit quick to spend what their relatives abroad send back home. Instead of applying budgeting habits, they can buy expensive items, such as a house or a car, the moment dollars start coming into their accounts. Usually these are bought using loans.
However, if something unexpected should happen to their OFW family member--such as getting laid off from their job--meeting those new financial obligations may wind up as a daily struggle for your family. With any perceived windfall of income, take the time to plan out your budget and emergency funds first before taking on any big-ticket expenses.
How to avoid financial mistakes in the future
Others' financial missteps can provide valuable lessons, but don't forget to listen to that voice of reason and use common sense. The bottom line? Reading the fine print and planning ahead can help you avoid your next money mistake.
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Citibank, N.A. Philippine Branch is supervised by Bangko Sentral ng Pilipinas with telephone number (632) 8708-7087.