We’ve all been there. A sale that’s too good to miss or the desire for a new car but no money to put down on it. Almost everyone makes a few financial boo boos’, but if you want to avoid getting deeper and deeper into a true financial quagmire, keep reading.
We are going to fill you in on the top 5 financial mistakes you should avoid at all costs. If you see your own spending habits listed here, maybe it’s time to take a good hard look at your financial well-being.
Mistake #1-Living on Borrowed Money
Everyone hits a little financial rough spot now and then but digging out your credit card is not the answer to this solution. Using your credit card to pay for everyday items or monthly bills is OK if you are doing so to earn air miles or cash back but doing so because you have no other way to pay is an easy way to get yourself in deep trouble. Find other solutions, such as selling items on eBay or earning some cash with a part-time gig, until you get back on firmer financial ground.
Mistake #2-Using Up Your Home Equity
Everyone is thrilled when they see that their home has increased in value, you shouldn’t see that as actual money in the bank. Refinancing your home and removing that equity in cash is a serious mistake many people make. Build equity in your home, don’t cash out unless you have a true life or death situation.
Mistake #3-Buying a New Car
We are not denying that sometimes, you need another ride because your old one is so old that it is no longer dependable. This doesn’t mean, however, that you should buy a more expensive car than you can afford or that you should buy new at all!
Buying a slightly used car that was leased previously is often a terrific way to save thousands on a car. Leased cars must be meticulously maintained but since they are used, they aren’t worth nearly as much as new. Just because you can afford the monthly payments doesn’t necessarily mean you can afford the car. Spend no more than 30% of your gross annual salary on a car.
Mistake #4-The Never-Ending Payments
No, we aren’t talking about your mortgage (although it feels that way sometimes) we mean those payments for things that you don’t need or don’t use, such as online music services, gym memberships, book club memberships, maybe even cable or Amazon Prime. First, if you aren’t using it, then it isn’t a good deal, no matter how cheap. Second, if you need some cash to help get caught up, cutting out these types of payments will add up to some serious cash every month.
Mistake #5-Frivolous Spending
Ok, so everyone is guilty of this now and then, but wasting money on a regular basis for things like Big Bucks coffee and those take out lunches really add up day after day, month after month. If you were to make your own coffee at home and pocket that $25-$35 you spend on it each week, you would save $1300! That’s a month’s rent or a year’s worth of car insurance (more or less). Better yet, what if you put that money away as a cushion against your next financial bind? Wouldn’t it be great, the next time you are hit with an unexpected $300 car repair bill to say, “No problem, I’ve got the money.”?