In the absence of any formal education in the United Kingdom, a lot of people end up learning about personal finance from personal experience. While experiences are good to help shape us, and teach us how to act, and react in certain situations, you should be trying to learn from the mistakes of others to supplement your own experiences.

In order to try and help those who do not want to fall into the most common pitfalls experienced by those around them, I have decided to compile a list of the most common financial mistakes made by us, so that you can be aware, and make your own choices.

This list is not meant to be comprehensive, as we could be here all day. Instead, this list should provide you with the context to be aware for other aspects of your life.

Not Being Aware of Lifestyle Creep

With the news that 25% of Brits have no savings, this means that a quarter of us are potentially living pay-check to pay-check, with no end in sight.

We might complain that we don’t have enough disposable income to cover our expenses, and feel as though we struggle through life, but we just need to calibrate.

If we are living on the breadline, we can cut out entertainment bills such as Netflix or Sky TV in favour of a one-time payment Freeview Box, or Aerial. Consider not upgrading your smartphone handset at the end of the fixed contract, and take out a SIM-only deal for a bump in your income.

There are many ways you can fine tune your life – if you can identify five areas where you are spending a lot each month, and cut the expected outgoing by £5 each, then that’s £300 a year extra you can put into an emergency fund!

It is also worrying that people live with no leftover disposable income as they probably have received promotions and pay rises which were coupled with a slight increase in ‘living costs’.

It is a natural to spend every last penny you earn on your current lifestyle as you try to pursue your ideal living standard, but it is key to get comfortable with a fixed cost of living that doesn’t change even with an increase in income.

You should ensure that you have a solid budget to get you through each month.

Personally, I like to use a zero sum budget where every single pound earned is assigned to a bucket (e.g. £1400 for housing, £100 for electricity and gas, £50 internet, £300 food, £2000 saving etc.)

By having a zero sum, then any overspend in one category will need to be funded from another category.

This differs from the traditional method of saving that people use, where they just ‘try’ to be as good as possible in the month, and save whatever is left over at the end of the month.

Continuing to Compare Yourself to Everyone Else

Here is a situation for you: your friend from work decides that he is going to spend a lot of money on a fashionable wardrobe; spending £500 a month to do so.

Your other friend at work spends £500 a month on new gadgets such as digital cameras, tablets, smartphones, etc. They both save £500 of their income too.

You are jealous of their new material possessions, and decide to upgrade your wardrobe, and spend money on new digital gadgets too in order to keep up with your colleagues.

You spend a total of £1,000, and have nothing saved.

It is easy to get into these situations when you try and keep up with everyone else.

Rather than trying to compete, focus on creating valuable memories and experiences which will last far longer in your mind than the latest iteration of quick fashion, or the latest handset which is out of date within a year.

If you can define what makes you happy, you can budget for it and stick to it without having the fear of impulse to buy what everyone else thinks is the latest ‘must have’.

Of course, if having gadgets or a nice wardrobe makes you happy, then stick to that in a similar way to your colleagues: make sure that you are making room for savings!

Not Having More than One Income

Are you saving for an emergency fund? If not, then how are you going to pay for your bills if you lose your job, or you have a financial shock (such as car maintenance, or needing to visit a sick relative abroad)?

Many of us have decided that we are going to put away money to protect against such situations as above, but how about an alternative solution?

What if you had multiple income streams that would mean you continue to receive an income, even if one of the income streams dries up?

Warren Buffett has always been an advocate of not ‘putting all your eggs in one basket’ and has been quoted in the past as saying “Never depend on a single income. Make investment to create a second source”.

To give some perspective, the average millionaire in the world has a minimum of seven different sources of income, and Warren Buffett has around seventy. Can you compare to this?

For the average worker, creating a second source of income is usually limited by time. You are already working a full time job, so how can you possibly find more time for another job? Well you don’t have to, if you create passive income.

Passive means that you can earn even while you sleep! Here are some forms of passive income:

Even while you are building your passive income streams, you can potentially find some additional time for freelancing activities.

Not Understanding the Time Value of Money

This is a good point to move onto after taking about setting up secondary income streams. If you are to optimise your finances, it is worth understanding the time value of money.

The time value of money refers to the cost vs time trade off you need to make on a daily basis. If you can earn £200 for an hour of your time, and a plumber costs £60 per hour to fix your plumbing issues, do you think it is best for you to fix the pipes yourself to save money?

This is a common situation that a lot of people don’t realise – if you are able to earn with your time (e.g. as a freelancer), then pay £60 for the plumber, and earn £200 in the same hour, to make £140. If you fix the plumbing yourself, you may have ‘saved’ £60, but you missed out on £140 of income.

The same logic applies to anything in life.

Imagine you have a rental property that can either take 1 hour of your time to manage each week, or costs 2% of the total rent you earn each month (~£50 for example).

If you earn £200 for your time, you can outsource the management of the property for £50, and pay for that with a portion of your earnings for that hour you would have used otherwise.

Some bloggers even find that the income they get from their blog starts to dwarf their earnings from their primary job, and they find that their time might be better spent on the blog to scale it further.

Not Having Long Term Goals

If you don’t have goals, what are you going to aim for?

One of the common traits of highly successful people is that they have ambitions to achieve, and usually the ambitions are for something specific.

By identifying what you want to become and what you want to achieve, it allows you to set out the roadmap of skills and milestones you need to hit to get there.

By breaking down the process into smaller manageable chunks, it is much easier to digest the large amount of work that is expected to achieve your goals.

Arnold Schwarzenegger’s story is perhaps one that can inspire you. He grew up in a small Austrian village, with dreams of becoming a body building champion, and movie star.

Those around him, including his family would laugh at him, and sent him off to the military at the age of 18.

His ambition never dwindled, and he put in more effort than those around him: waking up earlier than the other recruits to do more push-ups, pull-ups and sit-ups before the early morning run, and staying later than everyone else in the gym to build strength and size while everyone still made fun of his goals.

His vision became a reality later when he went on to win the top body building prize 6 years in a row, and went on to become one of the main action movie starts of the 20th Century.

While achieving that dream might have been enough for some, Arnold kept going, and became the Governor of California, and apparently still sets yearly goals and tasks he aims to achieve.

This goal setting each year is something I have been doing for the past five years to great effect.

Not Continuing to Learn

The final point in this list is that the most financially successful people will always continue to learn, adapt and get better, rather than let their knowledge become stale and irrelevant.

My favourite quote is “The more you know, the more you realise you don’t know” which is a really important philosophy to have.

In life, I never assume to know everything, and am always willing to discuss and debate any point, because the person you speak to might know more than you.

By being modest with your knowledge, it allows you to open your mind to learning, and in turn, will allow you to make more informed decisions about anything.

I worked hard to achieve a Masters in Financial Economics degree, but this merely created the foundation of my knowledge in the finance and economics space; I have continued to develop my knowledge in these fields with a mixture of curious reading, and practical application in my employment history.

Even though I have a lot of experience and knowledge, I would never claim to be an expert (despite it being my area of expertise).

Be curious, show humility, and be open to learning from those who might have a better understanding than you. This will allow you to obtain and make the most informed choices.