There are many factors in life that are simply out of our control. There is no telling when the stock market may plunge and not much you can do in the way of fixing the credit crunch or reversing the effects of the recession. However, there are still a number of things that you can do to ensure your financial security and turn your finances around before the year is out.
Don’t panic if you make mistakes, because the truth is that no one is perfect when it comes to money. The government has messed up before, lenders have proven they are not perfect, and Wall Street has made a mess of quite a few things over the years.
With that said, they are not completely to blame and we as individuals need to take some responsibility for our actions. We felt like we would always be protected should the worst arise and a lot of us have proven that we would much rather spend than save when it comes right down to it.
It is time to stop being lazy, start getting informed, and look inside ourselves when it comes to money mistakes that we should be trying our best to avoid. To help you get back on track financially here are some big money mistakes that we all need to avoid whenever possible.
Big Money Mistake 1 – Neglecting Credit Scores
While your credit score is only made up of three numbers, they may well be the most important numbers you ever deal with in terms of your personal finances. Your credit score is more important than imaginable as lenders are weary of any borrower and are simply saying no to anyone that isn’t low-risk. Thankfully, if you have a credit score over 750 you will still have lenders fighting for your business and it should be easy to find great rates when it comes to car loans, mortgages, and other personal loans.
On the other hand, if your score falls below 700 you may have trouble getting a second look from any lender, and even when you do you are going to be stuck with incredibly high interest rates. Everyone from insurance companies to car dealerships to landlords will take a look at your credit score, so pay attention and keep your score as high as possible.
Big Money Mistake 2 – Carrying Credit Card Debt
It wasn’t long ago that credit was cheap and easy to use, and this is what got a lot of us into trouble. It was easy to trick yourself into carrying a credit card balance and not think twice about it.
Now things have changed.
We are all finding out just how vulnerable credit card debt makes us as credit companies can raise interest rates, dispose of credit lines, and even close accounts if they deem it necessary.
This the best time to rid yourself of credit card debt and stabilize your financial future. Here are a few things you must come to terms with in order to cut down on your credit debt:
Borrowing your way out of debt is next to impossible. You may find credit cards with lower rates or higher limits, but the only true way to be debt free is to slash expenses and pay off your bills.
The better your credit score, the better rates you will receive. If you find that you have an above average credit score you can ask for a lower rate, which will then help you pay off your balances even faster.
If you need help, ask. If you are struggling to pay bills with good credit, if you are struggling to pay your bills and have poor credit, either way you are going to have to fight hard to turn things around. Consider talking to a debt counselor to discuss debt management plans if things are continuing to get worse over time.
Big Money Mistake 3 – Getting excited and Carrying too much Auto and Home Debt
It is quite common to start cutting expenses all over the place, and still realize they are just barely breaking even. Sounds like you? Then you are probably carrying far too much debt on your car or house.
In a perfect world, your home payments should not exceed 30% of your gross income while your transportation expenses should not exceed 15%. The major problem with carrying too much of this debt is that it can be incredibly difficult to work your way out of it:
Many auto loans are larger than the actual worth of the car, which makes it next to impossible to get out of the loan.
People all over the world are dealing with mortgages that they cannot afford, but even loan modification programs ask that homeowners fork over close to 40% of their overall income.
Sometimes it just isn’t worth it to keep your home, and that is a tough spot for many.
The true solution for this big money mistake is to set strict limits on how much you borrow, so here are some rules that should help you out:
If you would struggle to pay for a certain house with a 30 year mortgage and a fixed rate, then simply put you cannot afford the home.
If you are unable to make a 20% down payment on a car and pay it off within 4 years, you cannot afford that car.
You should never borrow more money for school than you expect to earn in your first year in your given career.
Big Money Mistake 4 – Stealing from your Emergency Fund
It is common for people to have to dip into their emergency fund from time to time, and that is why it is there. However, if you have completely emptied out your fund and have stopped put money into your savings, then it is time to make a change.
Saving money needs to be a priority, and that is especially true now that home equity lines are being shut down and credit limits are lowering. People are losing their jobs and you never know when unexpected emergency costs may arrive. You should be shooting to have 3-6 months income saved up at all times.
Just be prepared for the process to take awhile:
Start off small instead of shooting for figures that are unattainable. Try saving a week’s pay and then start paying off debt.
Don’t forget about retirement. When you are saving up in terms of your emergency fund do not forget to continue contributing to your retirement. Cut all other available expenses before dipping into your retirement fund in order to come up with the cash you need to get by.
Invest wisely and do not try to hit a homerun in order to be financially secure. Put your emergency money away in an insured bank account that you can access easily should an actual emergency come along.
Big Money Mistake 5 – You Duped Yourself
We are all guilty of being gullible from time to time. Whether you took advice from an investment salesperson, agreed to a jumbo loan you couldn’t afford, or jumped on and off of investments on a whim, there are many different ways that you may have taken a wrong turn.
In order to avoid most money mistakes you have to ward off any gullibility by educating yourself and learning your limits. If you can limit borrowing, live within your means, invest with the long term in mind, and be committed to changing, you do have the power to make the most off your financial situation.
The economy will always change, and nothing can be predicted. Once you understand this and start protecting yourself with savings you will have the power to ward off any other financial disaster.