Avoiding money mistakes results to proper money management and it is therefore one of the very important aspects of your life regardless of how much you earn. How you manage your money determines the quality of the life you live. How you live at home, whether you go to college and whether you buy something or not are all decisions that are made depending on how you treat your money. If you develop money saving culture you will hardly be in debt and your savings might help you get an investment loan. If you are keen on current finance trends you know that investing is a key strategy in wealth creation and financial stability. In order to reach your financial goals, here are 5 biggest money mistakes you should avoid.
1. Going back to school or college when you are not financially prepared.
This is a classical mistake that most people make. They start college without a clear plan on how they will afford college fees among others college expenses. You cannot go back to school when you do not have a well-paying job or enough savings to see you through your studies. When it happens you will end up securing a college student loan which will add on to your problems because you will have no way to service it if you do not have a stable income or savings. Your financial future will be better if you figure out the actual cost of going back to college before you enroll. The decision on whether you can afford college of your choice is informed by the total cost. Most people make a mistake of starting college without knowing and budgeting for the expected amount. By the time they realize that going back to school was a huge financial burden they are late for applying for scholarships and grants, looking for a part time job and they end up in a financial crisis.
2. Buying a home when you don’t have enough down payment or emergency fund
Sometimes when the deal is too good people make a mistake of making quick and unreasonable purchases just to avoid missing out on an offer. If you have not been planning to buy a home, do not buy it especially if you do not have an emergency fund or enough down payment. It is a major financial transaction and if you do have enough funds it’s a decision that you may not be able to live with. You need at least a certain percentage of the purchase price. When you do not have it, you will borrow a loan from a bank if you are credit worthy. One disadvantage is that borrowing for your down payment attracts a high interest cost. The interest rate on down payment loan is usually higher than a normal mortgage and is said to have a more risky variable rate. When you are looking for a down payment credit, you are more likely to make a mistake of borrowing from less credible sources. This leaves you in even deeper financial problems due to the financial consequences. To be on the safe side, buy a home when you have adequately planned for it and you have enough down payment or emergency fund.
3. Buying an expensive car
Buying an expensive car is among the money mistakes that you should avoid. If you are a smart person expensive and luxurious cars should not impress you. At this point in time you may not anticipate future financial challenges but when they come you will wish you had bought a cheaper car and saved the rest of the money. If you know that you cannot afford an expensive car in terms of fuel consumption, insurance and maintenance, do not make that mistake otherwise it will be a setback to your other financial goals.
Some people secure a huge loan to be able to buy expensive cars that they have dream about all their lives. This is a huge mistake if you have not looked at the long-term financial effects of the cost. If you can afford it, buy the car with cash but if you have to get into debt, that car is not good for your finances. If you try to use your expensive car as a status symbol you may never get wealthy. For smart people luxurious cars are not status symbols. They have several assets that show that they are successful in life.
4. Retirement age mistake
Most people get into money management woes because of making the mistake of retiring too early. Starting to take social security before you reach full retirement age which is usually above sixty five is not a good finance decision. Although you are eligible to take social security some four years before the full age, doing so will reduce your benefits by about twenty five percent. If you delay taking the social security by around four years your benefits increase by thirty two percent. To benefit fully from social security retirement benefits, defer taking social security as much as possible. It is a wise way of saving for the future. If you have already started taking the benefits before your retirement age, you can withdraw mostly within one year of benefits’ application. If you have already hit the full retirement age, you may suspend taking social security retirement benefits in order to get delayed retirement credits.
5. Get more loan and credit and get in more debt
Getting more loans and credit to meet your financial needs is for sure an immediate solution but it creates bigger future financial crisis in form of debts. The loans come in form of college loans, car loans, home loans as discussed above. If you accumulate all these type of loans and credit, it will take you a very long time to achieve financial freedom. These several debts result into poor credit history that affects your future ability to apply for secured loans. Due to lack of money management and saving skills you will be in a dangerous form of financial instability and wealth creation might seem like a far-fetched dream. On the contrary, if you avoid the discussed 5 biggest money mistakes you are on your way to great financial success.