Money management can be challenging. Here we’ll look at how to avoid the most common mistakes that can get you into debt and lead to significant economic hardships.
Following Are Ten of the Most Common Mistakes to Avoid:
1. Excessive Spending
Every item adds up; double-mocha cappuccinos, dining out or ordering pay-per-view movies. For example, $25 spent on dining out costs you $1,300 per year; this is money that could be applied to your debts.
2. Unnecessary Services
Stop and evaluate services you’ve signed up for; are they cheaper elsewhere? Do you need the service? Creating a leaner lifestyle and paying down your debts help cushion you from financial hardship.
3. Bumping Up the Price Using Credit Cards
Consider that when you use credit cards to buy essentials, such as groceries gas, you are paying double-digit interest rates on those items, making the price of the items considerably more expensive.
4. Buying a New Car
It’s not often you see people pay cash for a new car. And trading cars every 2-3 years can be a money-losing proposition.
Most people take out loans to buy a car –but do you need the biggest, most expensive SUV on the market? Along with the high price tag, there is insurance and fuel. Unless you tow a trailer or boat, consider other options that use less gas and cost less to insure and maintain. The money saved can be applied to pay off debts.
5. Too Much House
Choosing a 5,000-SF home for two people means higher loan payments, higher property taxes, more maintenance, and higher utility bills, putting a significant strain on your monthly budget leaving no breathing room to pay down on debt.
6. Misuse of Home Equity
Refinancing makes sense if it lowers your interest rate, reduces your payments, shortens your term, and provides an opportunity to pay off higher-interest debt with the money saved. Refinancing and withdrawing some of the equity out of your home can bump the payments up considerably. The same holds for home equity loans (HELOCs). Avoid using your equity as a personal bank.
7. Keeping a Buffer
Living outside their means and overspending puts people in a risky position—one paycheck missed could be disastrous, especially if faced with an economic recession.
Changes in the economy or loss of employment could drain your accounts and place you in a cycle of debt paying. Financial planners recommend keeping three months’ worth of living expenses in an easily accessible account; it could make the difference in keeping your home.
8. Retirement Investing
According to the experts at www.Bills.com, if your money is not working for you in income-producing investments, you may never retire. Please take advantage of tax-deferred retirement accounts; understand the time it will take to grow your assets and how much risk is involved.
9. Paying Debt with Retirement Funds
In some cases, borrowing from your retirement investment account may be a viable option; however, even the most disciplined planners struggle to rebuild these accounts.
The urgency to repay those funds diminishes once the debts are paid off; the temptation to continue frivolous spending exists. If you opt to pay your debt from your savings, be sure to pay yourself first and repay your retirement fund.
10. Bad Plan No Plan
The only thing worse than a bad plan is not having a plan. Make your finances a priority; spend a reasonable amount of time developing a sound plan.
Help Managing Your Finances
Start by evaluating your expenses:
- Small expenses add up quickly; start by assessing those first.
- Next, move on to the more significant expenses.
- Think before adding new debts (Do you really need a new phone?).
- Finally, make savings a priority.
Making the necessary changes and avoiding the most common mistakes to keep you out of debt can be challenging. Partner up with Bills.com and stay on track.