The top five money mistakes you’re probably making right now

Last week was another rough one for your money, with things to get worse on Tuesday when inflation likely triggers a third consecutive rate rise. Optimised finances are essential right now. But instead, everywhere I look, I observe the opposite.

I see people inadvertently wasting money by overpaying on essentials – though they usually believe they have cut expenses to the core.

I see them making simple strategy errors, sometimes in the name of cost-cutting, that, in fact, cost them more. And I see opportunities to get in a better financial position long term, squandered.

Here are the five money mistakes Aussies today commonly fall for, which are making times tighter.

Mistake 5: Paying the ‘lax tax’

Realise that your so-called fixed costs are anything but. If you’ve been a customer for two years or more, you probably need to ditch and switch every provider in your life.

Think utilities, insurances (but don’t ditch these vital safety nets) and your financial products. Yep, the lot. And it should save you a lot.

The challenging economic climate means it’s time to finesse your finances.

I outlined in a recent column how comparison sites now make this easy. How much could it cost you or, alternatively, save you? Say you have $400,000 mortgage. If you moved from an uncompetitive 7 per cent loan to a 5.8 per cent one, you would boost your bottom line by $300 a month.

The figure is $523 on the more-average $700,000 loan. And it’s of course, upwards from there.

So, start with your mortgage then resolutely slash one “fixed” cost at a time – perhaps one a pay. It needn’t be overwhelming, but it needs to be done – the “lax” or lazy tax simply drains your dollars away.

Mistake 4: Falling foul of health insurance penalties

It’s one month beyond the April 1 health insurance hikes, so you will likely have felt the premium pain. At an increase of an average 4.41 per cent, it’s the largest rise for a decade. And ill-timed.

But before you drop it, know that might be financially foolhardy. If you earn more than $101,000 as a single and $202,000 as a couple (2025-26 tax year), you will pay the Medicare Levy Surcharge of up to 1.5 per cent of income if you don’t have private health insurance.

That penalty would – in fact – virtually cover the cost of basic hospital cover … so you may as well get the protection! But, sure, in this scenario you are still out of pocket.

So, try my tactic to prevent that: buy extras as well and then claim everything you can on this to try and entirely cover the cost of your insurance.

Mistake 3: Keeping money in a separate savings account when you have a mortgage

The maths on this is cut and dried. You’ll make maybe 5 per cent in a savings account, from which you’ll be taxed on – which could as much as halve it.

Meanwhile, you’ll save more like 6 per cent if you sit your money alongside your mortgage instead … and that will be tax-free. When I say “alongside”, I mean in an offset account. This is the peak safety move … and ensures you retain full access.

Mistake 2: Not being tech-savvy

Tech presents threats to your money – hello all the lubricated ways of spending more than you earn now – but also possibilities. Automate a bright future – it’s truly that simple.

With any money you have, no matter how small (and maybe you find some from slowly rectifying mistake #1), set up direct debits to “Future You”.

Very possibly the easiest strategy is to automate regular investments into an Exchange-Traded Fund (ETF) – or three for diversification. The earlier, the better. Just $6 a day invested from age 18 at an 8 per cent average return, will become $1 million by age 60.

But the spectacular thing is that just $100,000 comes from your pocket – a full $900,000 is investment returns, so “free” (tell your kids if you have them!). Even if it’s far too late for that, the time to start is today, to harness every possible day for compounding to work its magic.

Mistake 1: Paying down and then discharging a mortgage

You never know when you might need the ability to access the equity in your house. So consider keeping even $1 owing or better still, put all extra money into your offset.

With the latter approach, you’ll still have to make your contracted monthly repayments once the offset equals your debt, but if you keep making them from income, this is a great form of forced saving – and means you retain your lump sum.

The challenging economic climate means it’s time to finesse your finances hard – to both free up money and build it up for a more financially secure future.

Nicole Pedersen-McKinnon is the author of How to Get Mortgage-Free Like Me, available at nicolessmartmoney.com. Follow her on Facebook, X and Instagram.

• Advice given in this article is general in nature and is not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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