Gaining financial independence can be tricky, 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 avoid them. We’ve listed a few precautionary steps you can take to steer clear of financial mistakes.
Depending on your stage 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 compiled the following list of mistakes that could harm your financial success. While there are other things you’ll need to consider, this list gives you a general starting point to build your wealth successfully. First, start taking steps toward avoiding debt, then build up your savings.
1. Not Having a Plan
A financial plan may be crucial to 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 to 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 most challenging financial mistakes and habits to break. If you have a limited income, spending beyond your means can be one of the most damaging habits. Something as simple as dining out once a week can cost you thousands over a year. Expenses like these are important to wrangle since these costs could instead 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, but it could also reduce your credit score. Creditors often report when bills are 30, 60, and 90 days late. These late payments 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 for a car repair bill or a copay for medical bills. This is most often why people take out payday loans, to begin with. Emergencies are not financial mistakes on their own. The genuine error is failing to prepare for an emergency. To avoid this and unexpected debt, build up an emergency fund with enough money to last three to six months of your living expenses. Living paycheck to paycheck makes it challenging to pay bills and potentially impossible if you unexpectedly lose your job. While building that much money up at once may seem impossible, 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 an excellent 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 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, owning a new car over a pre-owned car has few advantages. If you don’t have the cash to afford a new car, you should consider getting one 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 expensive, and selling a house in dire times could be anywhere from costly to impossible. Avoiding debt is more than just buying a home that you truly cannot afford but also means considering the actual 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 your employer’s tax-deferred retirement accounts and plans to increase your investments. For more information, consult a qualified financial advisor.
Getting on track to financial success doesn’t happen overnight, so try your best to learn and avoid common financial mistakes when possible.
High-interest loans can be expensive and should be used only for short-term financial needs, not long-term solutions. Customers with credit difficulties should seek credit counseling. The opinions expressed above are solely the author’s views and may or may not reflect the opinions and beliefs of the website or its affiliates. Cash Factory USA does not provide financial advice.
Image(s) or Footage (as applicable), used under license from Shutterstock.com.