Both younger and older adults tend to make petty mistakes when it comes to managing their finances. While these blunders are expected to be made to a certain extent, they should also be learned from. If not properly corrected, such errors can turn into costly habits. In fact, some of the smallest oversights can turn into your worst financial nightmares.
Mistake #1. Not Having a Game Plan
Whether you want to or not, you need to sit down and create a game plan for yourself in regards to getting out of debt. While it may not be possible for you to get completely out of debt within the next couple of years, do try to rid yourself of car loans and credit card debts in the next five years.
So, how do you go about doing this? It’s simple.
- For each of your car and credit card debts, divide the total by the number of months left on the debts. The number that you get will be the monthly amount of money that you need to pay to satisfy all of your debts. If you do need a credit card, opt for one that offers cashback or great incentive awards.
- If the amount happens to be a price that you can afford quite comfortably, consider adding an extra $50 to $100 on top of it each month.
- In doing this, you will be well on your way to being debt free (not including your mortgage or student loans) in less than three to four years.
Mistake #2. Taking Out Student Loans
Believe it or not, going to college is not always a good thing, especially when it comes to your finances. To make sure a degree is worth it, you will need to follow the career path of someone who makes good money, or otherwise, you will need to come up with the funds beforehand.
For example, if you plan on going to school for a Master in Education but only plan on teaching at a local middle school, this won’t be worth the money spent. Instead, you can earn your bachelor’s and only be out about $20,000 to $40,000 in debt versus $80,000. Doing the math before you go to college is always a smart financial choice to make.
Mistake #3. Incorrectly Calculating Your Credit Score
When it comes to your credit score, you need to understand what actually affects it. Your credit score plays a huge role in your ability to qualify for loans, which could mean the difference between being able to buy a home or having to rent.
It is this score that also affects the type of car loans and credit card offers you will qualify for. The more reasonable your rates are, the more money you will save in interest. Here’s how your your credit score works:
- Your payment history accounts for about 35 percent
- Your debt level compared to your actual credit limits account for about 30 percent
- The length of your credit history accounts for about 15 percent
- Inquiries and your mix of credit both account for about 10 percent each
Mistake #4. Not Planning for Retirement
When you don’t pay attention to the superannuation accounts that you join, this means you aren’t taking your retirement seriously. This is one of the biggest financial mistakes that you can ever make. If you happen to be one of those people who jump around from one job to another, that’s fine; however, make sure you aren’t paying multiple fees on multiple superannuation accounts.
Mistake #5. Buying a Brand New Car
Buying a new car can give you a sense of exhilaration like none other. On the downside, however, it can bring about many financial headaches. If you are in need of a car but cannot afford to buy a new one, consider buying a second-hand car. It meets your requirement well and counts as a great bargain.
The arguments against buying a new car when repayment could be a concerns are;
- For starters, as soon as the car is driven off the lot, it will depreciate by as much as 25 percent.
- Secondly, new cars tend to come with expensive price tags. If you get to a point where you can’t afford the payments, the car can be repossessed, which will prove to be horrible on your credit report.
- Lastly, once the time comes for you to sell the car, you will have a very difficult time making any significant amount of money back on it.
Keeping all of this in mind, remember that used cars can be much more affordable, and they tend to last just as long as a new one.
Unfortunately, many people make financial mistakes that they aren’t aware of. It’s not because they don’t care, rather it’s the simple fact that they haven’t taken a hard look at the outcomes of their financial choices. Don’t be one of those people. Instead, take to heart the above mentioned tips, always striving to avoid costly financial mistakes. Being financially-savvy isn’t as hard as it seems. All you need is a little awareness and some financial sense.
Keith Pierson is the Account Manager for AllBusinessLoans.com. They match small to medium-sized businesses with experienced lenders for fast business loans.