6 Money Mistakes You DON’T Have to Make
October 25th, 2007 | by rachel |
Where money is concerned, there are lots of areas that affect your finances that you cannot control - the stock market, interest rates, real estate values, etc. Likewise, it is easy to make mistakes with your money and trying to manage it successfully. No matter what your income, financial circumstances and goals, YOU have complete and total control over how YOU spend and manage YOUR money. Before spending it, read about these money mistakes that you don’t have to make.
MISTAKE #1: Spending More Money Than You Earn
There is no magic formula or “tip” for making this happen. Whether or not you “live within your means” is totally dependent on your discipline, maturity and self-control. The habit of spending more than you make today will catch up with you in the future. When it does, you will not have a “financial safety net” to fall back on.
MISTAKE #2: Taking On More Debt Than You Can Manage
It is very easy, too easy in fact, to acquire more debt than you can comfortably manage. Many marketing strategies that consumers are bombarded with focus on “low monthly payments” because our minds are more likely to see lower payments as more affordable. The problem is that we take on so many different “low payments” that we get in a bind. We never consider the overall cost (payments + interest over time) that we have to pay to get the things we decide to finance. Our lack of discipline and desire to have everything right now feeds this.
For example,
- Living “paycheck to paycheck” is a symptom of trying to manage more debt than we are able to handle. This type of “financial plan” leaves no room for errors or the unexpected.
- Buying when you should rent has become quite common in recent years with the amount of credit available and the rising values of houses. Many people that were already deeply in debt have been able to qualify for mortgages that they really couldn’t afford. The subprime mortgage crisis and the rise in foreclosure rates is a direct result of those people buying when they should have continued to rent.
- Overbuying your car is part of the same problem. Leasing makes it possible to get “more car for your money”, but it turns the car value upsode down faster than a car purchase. Over and over and over, people that finance their cars are stuck owing more on the car than they are worth after a very short time.
- Using your credit card for living expenses and/or small purchases should be HUGE warning sign that you have more debt than you can handle. If you have to use credit to purchase basic necessities, your cash flow is being swallowed by too much debt.
MISTAKE #3: Leaking Money
Bank and credit card fees have never been higher. There are fees for EVERYTHING the banks can think of and new ones are introduced all the time. With the information available and the variety of ways that you can receive that information, you should never pay late fees, overdraft fees, ATM fees, etc.! If you have a credit card, there is no reason to pay for it. There is LOTS of competition in the credit industry and plent of people are willing to give their credit cards away.
If you have trouble keeping track of your accounts, payment dates, etc. there are things you can do:
- pay your bills automatically by using online banking and/or automatic drafts
- adjust your due dates to coincide with your payment periods
- use a computerized software package to track and manage your finances
Just a little bit of attention to the details of your bank accounts will help you avoid money “leaking” out of your control.
MISTAKE #4: Not being insured adequately
Especially if there are people that depend on you and your income, you must have some form of insurance to provide for them in case something happens to you. Depending on who you listen to, it is recommended that you carry life insurance for 5-10 times your annual income.
Other than life insurance, it is essential that you carry insurance to protect your possessions (your home and its contents, jewelry, cars, etc.). Depending on your age, there are other types of policies that you should consider - disability insurance, umbrella liability insurance, long-term care insurance, etc.
There are lots of options to consider when purchasing insurance for you and your family. It is not something that you should do quickly or without learning all the details. It is something you should do, however, and make sure you take the time to do it right!
MISTAKE #5: Not being educated about financial issues
With the wealth of information available on any and all topics, there is no reason for you not to be aware and informed about all financial issues that you face. When something comes up in your financial life that you are not educated about, don’t rest until you find out what you need to know and understand what you find out.
MISTAKE #6: Not saving for your retirement
More and more, employers are choosing NOT to provide pension programs for their employees. These days, it is VERY unusual for employees to spend their entire careers with a single employer and the costs for providing and managing pensions has become all but prohibitive for employers. Even without a company pension, it is possible to put something away for your retirement years. The specific instruments you use and the amounts you decide to contribute are dependent on a number of variables. It is not necessary that you know all about HOW to save for your retirement, but it is vital that you make a commitment to do it and find someone that can help you do it correctly.
No matter what, you WILL make mistakes with money. Do yourself and your family a favor and spend some time avoiding the money mistakes that you DON’T have to make!