Gaining financial independence can be tough, especially when you’re hit with unexpected bills and expenses. Short-term loans and installment loans are sometimes the best options available. However, there are a few mistakes you should be aware of so that you can do your best to stay on the right track. We’ve listed a few precautionary steps you can take to steer clear of financial mistakes.
Depending on what stage you are at in developing your financial success, some tips may be more relevant than others. No matter your income level or types of expenditures, there are always areas for improvement.
Making Critical Financial Mistakes
We’ve come up with the following list of mistakes that could harm your financial success. While there are definitely other things that you’ll need to consider, this list gives you a general starting point so that you can successfully build your personal wealth. Start with taking steps toward avoiding debt, then begin building up your savings.
1. Not Having a Plan
A financial plan may be the most important aspect of building your financial success. Not only does a financial plan keep you focused on what you want to ensure you don’t overspend but it also sets your objectives so that you can achieve your financial goals and minimize the number of financial mistakes. If you’re hoping to buy a car, buy a home, or have kids, making a plan should be the first step. It provides tangible goals and can let you know when you’ve broken one of your financial rules.
2. Excessive Spending
Excessive spending can be one of the toughest financial mistakes and habits to break. If you have a limited income, spending beyond your means can be one of the most damaging habits that can prevent you from ever getting ahead. Something as simple as dining out once a week can cost you thousands over the course of a year, which could go towards a mortgage payment or extra savings. Poverty can be a cycle and avoiding debt from unnecessary spending is one of the quickest ways to break that cycle.
3. Paying Bills Late
Not only does paying bills late add fees and charges, but it could also reduce your credit score. Creditors often report when bills are 30, 60, and 90 days late, which may reduce your credit score by up to 100 points. This is a critical mistake to avoid, especially if you’re trying to build up credit to finance a car or take out a home mortgage.
4. Living Without an Emergency Fund
Unexpected financial emergencies are bound to happen, whether it’s for a car repair bill or a copay for medical bills. In fact, this is most often why people take out payday loans to begin with. Emergencies are not financial mistakes on their own. The real mistake is failing to prepare for an emergency. To avoid this and unexpected debt, build up an emergency fund with enough money to last you three to six months of your living expenses. Living paycheck to paycheck makes it difficult to pay bills and potentially impossible if you unexpectedly lose your job. While it may seem impossible to build that much money up at one time, start small and your savings will quickly grow.
5. Paying Too Much for Credit Card Bills
Similarly to paying bills late, you may also be making the financial mistake of paying too much for credit card bills. While having a credit card and using it is a good way to build credit over time, having unpaid credit card bills or too much credit card debt may harm your credit score. Credit card debt is only good when it is managed, and you should be careful when using these cards. For more advice, ask a financial advisor about the best ways to use credit cards, their potential bonuses, and avoiding debt.
6. Buying a New Car
A common yet costly financial mistake many consumers make is buying a new car. New cars are expensive and their value depreciates over time. Other than the vehicle’s mileage, there are few advantages of owning a new car over a pre-owned car. If you don’t already have the cash to afford a new car, you should consider getting one that is better suited to your financial plan.
7. Buying a Home Out of Your Price Range
Buying an expensive house means paying more on monthly mortgage payments. Houses are costly and selling a house in dire times could be very costly at the least and impossible at the worst. Avoiding debt is more than just buying a house that you truly cannot afford but also means considering the true financial cost of a house that may seem affordable. Consult your financial plan to see what your budget is for your home, and if you are committed, make sure that you have built up enough emergency savings in case of unexpected house repairs.
8. Not Investing
Once you have built an emergency fund, one of the best things you can do is start investing. Not investing is one of the worst financial mistakes you could be making if you have extra money after expenditures. Re-investing your earnings will compound your savings and build your wealth for future goals. If you have enough to invest, start now and let compound interest work in your favor. In addition, make sure you take advantage of tax-deferred retirement accounts and plans offered by your employer to increase your investments. For more information, consult a qualified financial advisor.
More About Cash Factory USA
Cash Factory USA is committed to providing payday loans, installment loans, and other financial services to offer individuals choices when options are limited. Remember, paying loans back on time helps you avoid getting off track. Getting on track to financial success doesn’t happen overnight, so try your best to learn and avoid common financial mistakes when possible.