Seven financial mistakes to avoid when you are broke

Many of us will find ourselves broke now and again. For some, being broke might even be something that happens every month - just before payday.

But even though this might be the case, many people don’t take time off to carefully evaluate their finances to ensure they manage them better. Sadly, many people have gotten into the habit of depending on credit to survive.

According to a World Bank report, South Africa is the most indebted country in the world. 

Here are seven financial mistakes that you need to avoid when you are broke - as you will only make the situation worse:

Getting a short-term loan or applying for an overdraft

There are many loans available on the market, including the ‘payday loan’. Although you might think it’s a good idea to get a loan when you are feeling the pinch, this is not advisable. Loans come with interest. No matter how big or small the interest might be, the money used for paying interest can be better used to buy something useful. You can even use the money to invest for your future.

Taking credit to pay credit

Instead of making multiple monthly repayments on various accounts, the idea of paying one monthly instalment through a debt consolidation loan might sound like a great idea, but is it? Debt-consolidation does not reduce your debt. Because it is also a loan, it also has its own interest. So, before you take out debt consolidation, read the fine print. You might find that the repayment period is even longer and you end up paying more.

Withdraw from your emergency funds

Unless you are dealing with an emergency, do not withdraw money from your emergency funds. If you do, you might find that later when a real emergency arises, you have no money saved up.

ALSO READ: How to financially prepare for your child’s future

Pamper yourself on credit

Whether you are thinking of getting a massage or buying yourself a new pair of shoes, this is not the time to be spending money on things you don’t need. Wait until you have enough spare cash to pamper yourself. This way, you won’t even have to feel guilty or reap the consequences of a bad financial decision. 

Go out with friends

Although going out with friends might be fun, it can also be costly, especially if you are going out for drinks or food. If your friends will not be covering the bill, you might want to let the date pass.

Take a vacation

It’s peak season for holidays and with the long weekend approaching, you might be tempted to go on a vacation. But going on vacation is never cheap and sometimes you can even incur unexpected costs. So, unless you have saved enough money for the vacation, rather postpone for a time when you are financially okay.

Gamble

Gambling might seem like a good idea when you are broke, but it is not. You might end up losing a lot of money and live in regret. You do not need this in your life.

Image courtesy of iStock/ tarasov_vl