Learn from my financial mistakes

4 February 2015
Everybody makes financial mistakes: from doomed marriages to house insurance stuff-ups, life can sometimes feel like a high-speed car chase around the edges of various money pits.
What I have discovered, after blogging about my personal finances for several years now, is that confessing my mistakes to the world at large can often take the sting away. It’s cathartic. These days, I view the fiscal misadventures of my past in a new light: as a regrettable but necessary school of hard knocks.
Here are some of the financial lessons I have learnt the hard way. Think of it as a bucket list tipped on its side: these are the money mistakes you really should have put behind you by the time you are 40. 
1. Don’t lend money you can’t afford to lose
This mistake seems to be one that burns many of us. In particular, it applies to loans made to and from friends and family. If there are any issues with repayment, the lingering resentments can be poisonous and the relationship may be affected. Some recipients, I have found, become resentful because they feel ‘beholden’.  
2. Never borrow against a depreciating asset
One of the quickest ways to lose money hand over fist is to take out a loan for a new car. Too often, the value of the vehicle drops more quickly than your outstanding balance. Don’t take out a vehicle loan, or pay for electronic goods with a credit card, if you can’t pay off the balance immediately. 
The same applies to certain consumer goods. As I have discovered to my (literal) cost, the value of items such as phones and computers depreciates at an alarming rate, not least because modern-day electronics become obsolete so soon after purchase. 
3. For heaven’s sake, start planning for your retirement as early as possible
I shan’t dwell on this subject because young – and not-so-young – readers of Moneywise are well-acquainted with it already. All I’ll say is this: when you get to 30 and calculate how much you need to be socking away each month for a liveable retirement income, compared to the amount you need to pay towards a pension every month if you begin in your early 20s, the difference between the two sums isn’t just depressing. It’s galling.
4. ‘Disposable’ income is anything but
Now that I take a great interest in savings and investments, the follies of youth – both mine and others – seem bewildering. Why spend so much money on tat? Why did I ignore the need for a retirement income in favour of buying designer shoes and vintage spectacles?  
5. An emergency fund is the personal finance equivalent of chocolates and flowers
Sometimes, bad things happen. Last year my washing machine died, my cooker began leaking gas and my car was vandalised – all within a fortnight. In the old days, I would have scratched around for an extended limit on my credit card. Nowadays, I maintain an emergency fund to take the stress out of everyday life. 
An emergency fund should be three to six months of living expenses. In other words, if your employer went bust tomorrow, you wouldn’t sink. Unfortunately, too few of us have them: in the UK, an estimated 43% of families would be unable to pay the rent or mortgage for more than a month if their household income dried up.
6. Failing to budget is budgeting to fail
When the month begins to last longer than your money, your budget is due for a review. Financial mistakes can be easy to make but they don’t always have to be difficult to fix. Isn’t it amazing how a simple pen and paper – or in my case, an Excel spreadsheet – can work miracles?