Personal finance continues to be a problem with which many adults still struggle. A lack of education in this area of economics is partially to blame, but financial troubles are also caused by poor choices. While the circumstances in your situation may be unique, it’s likely that you’re making financial errors that are common among most adults. The following guides outline those mistakes to help you avoid them in the future.
Buying a New Car
Your ability to buy a brand new car may be seen as a status symbol in modern society, but take the time to think about what it’s costing you. A new car loses up to 20% of its value within its first three to five years of ownership. This means you’ll end up with an upside-down car loan in just three years after you buy a new car. The smarter financial move to make is to buy a used car that’s at least three years older. That will enable you to get the same make and model without overpaying on the vehicle. Additionally, don’t pay attention to the monthly payments. A longer car loan with lower payments will require you to pay more interest over time. You’ll save more money by paying closer attention to the total cost of the vehicle and the rate of interest you’ll be paying.
Using Credit Cards to Consolidate Debt
The only good way to use credit cards is as a tool for building credit. This means making small charges that you know you can repay within the same billing period. When you use your credit cards to consolidate your debt, you’re exposing yourself to extremely high interest rates that will make it impossible for you to repay your debts. In most cases, this means the individual can only afford to make the minimum payments each month, causing the interest to add up month after month. This cycle of building debt ultimately leads to a need for filing for bankruptcy.
Making Late Payments
Falling into a habit of making late payments adversely affects your finances in several ways. First, it exposes you to late fees and penalties that will drain your income. As a result, your monthly budget will be thrown off, and you’ll start falling behind on your monthly obligations. The second and more important way your finances will be affected is that your credit score will be negatively impacted by every late payment you make. Eventually, you’ll end up in a situation in which you’ll find it impossible to qualify for a mortgage or auto loan.
Failing to Invest Your Savings
In the future, you’ll want to retire, and you will face serious medical conditions that will affect your quality of life. There may also be a need to finance your ability to stay in assisted living facilities where you can get consistent care. The only way to build the wealth you’ll need to pay for your senior years is by investing in retirement investment accounts. If your employer offers a 401K, you should contribute to that and take advantage of the maximum contributions your employer offers. Additionally, you should maintain a separate IRA or Roth IRA account. Later, if you change jobs or retire, you can roll your 401K savings over into your separate IRA account.
Failing to Use a Budget
The mere thought of creating a budget makes most people groan with disgust, but doing so shouldn’t be seen as a chore or a punishment. In fact, creating an actionable budget should be seen as a good financial strategy for helping you maintain the quality of life you want for yourself. Your budget should provide the means for you to meet all of your monthly financial obligations on time, while leaving enough left over for recreation and for building up a savings account. If you can’t put at least 10% of your income away in a savings account each month, you will need to reduce your expenses or increase your income.
Conclusion
You don’t have to wait for a bankruptcy judge to compel you to learn more about personal finance and credit. You can take personal finance courses now. Even credit counseling courses are open to anyone without requiring that you first go through a bankruptcy. In fact, learning more about these topics now can help you avoid adverse financial situations in the future.
