Common Financial Mistakes to Avoid

Studies show that, over the past twenty years, the personal savings rate of U.S. citizens has declined by 10% while the debt-to-income ratio in that same time period has nearly doubled. Although statistics such as this may give the impression that overspending is normal, it certainly is not wise and can be downright irresponsible. With just a little thought and attention, you can protect your paycheck from this kind of onslaught by being aware of these common financial mistakes and avoiding them:

  • Spending money frivolously. It may not seem like much at the time, but all of those small creature-comfort purchases or little moments of entertainment will add up. That $2 latte on the way to work every morning will put a $520 hole in your wallet over the course of a year. And spending just $30 a week eating out will run up a tab of over $1,500 during that same span. What could you do with an additional two grand?
  • Payments, payments, and more payments. Do you really need items that keep you paying money after month, year after year, for the rest of your life? Things like cable television, subscription radio and cell phones can force you to pay and pay forever but leave you having never bought and taken possession of anything.
  • Excessive use of credit cards. Our society lives on borrowed money, the revolving-payment plan. It’s the height of shortsightedness when consumers are willing to pay double-digit interest rates for perishable items such as food, gasoline, and numerous other things, only to have them used up and gone long before the credit card bill is paid.
  • Buying more cars than you need. Of course, in this society a car is pretty much a must. The most expensive vehicle that you can qualify for a loan on, however, is not. New cars and SUVs cost a small fortune to fuel, insure and maintain. Not to mention the strain of making the monthly payments just so it won’t be repossessed. A late-model used vehicle is a much better buy and more cost-effective.
  • Buying too much house. When it comes to buying a house, bigger is not necessarily always better. Unless you’re the Brady Bunch, choosing a home with 5,000 square feet may end up causing you more pain and anguish than comfort. Utilities, maintenance costs and taxes on such a large home will put a significant long-term dent in your monthly finances.
  • Taking cash out when you refinance. Taking cash out of your equity gives more ownership of your home to someone else. It also costs thousands of dollars in interest and fees. Unless it’s absolutely necessary, the best thing that you can do is to build up your home equity.

Break the habit of overspending by beginning to monitor those little expenses, because they can and do add up quickly. Next, start to monitor the big expenses. Think carefully before adding new debts to your portfolio of payments. Finally, make saving some of what you earn an ongoing priority.

blog comments powered by Disqus