It’s very easy to get caught in some bad financial habits. Life demands a lot of expenses and it’s only natural to want to enjoy your time on this earth. However, if you are not careful, those small bad habits can turn into big financial headaches down the road. The more you can apply smart financial strategies in your daily life, and especially when it comes to major purchases and investments, the better off you will be in the future.
Preview some common finance mistakes and recommendations on how to avoid them or correct those bad habits
It may not seem like much to spend a few bucks a day buying gourmet coffee on the way to work, eating dinner out or going to the movies and splurging for the 3D showing, overpriced popcorn and drinks. It all adds up, and you must ask yourself if all those expenditures are worth it. Think about this, if you spend $25 less a week on common daily expenses, that is $1,300 in a year. That’s money you can better spend to pay down your mortgage, car loan or invest in something that might yield an even better return. We’re not saying live like a hermit and only eat bread and water, but just look for ways to cut back some of that excessive spending.
Taking on Major Loans
This is a trap almost all of us fall into because we live in a buy-it-now and pay-for-it-later economy. Of course, unless you have a ton of cash in your bank account (in which case you’re probably not reading this article), a major purchase like your home will require a loan to even be feasible. It’s also easily justifiable because you are hopefully gaining money in equity over time. Just be careful not to overextend yourself and buy more house (or car) than you can really afford. Car loans are also very common and usually necessary, too, but look into lease options or consider buying a used car rather than a new one. Let someone else deal with the immediate depreciation when a car is driven off the lot for the first time.
Credit Card Debt
Credit cards are the biggest culprit for causing significant debt. Racking up bills and paying the minimum monthly payment allows you to buy a lot for a little, but debt can easily build up and those interest rates and other fees can really set you back. By the time you end up paying off the card, you may have paid double or even triple what those original purchases cost you. Review the terms carefully before signing up for a credit card and do what you can to keep it paid off, or at least pay as much as you can beyond the minimum monthly payment.
Bills, Bills, Bills
Again, frivolous spending can add up here. Sure, you need common utility bills to live your life, but look at your cable/satellite bills. Do you need all those premium channels? Do you have to order those pay-per-view movies and sporting events? Even with those standard utility bills, you can look for ways to save by keeping lights turned off when not in use, reducing how much you use your air conditioner or heater and running major appliances during non-peak hours. Also, consider more energy efficient options to save more money on your electric bill over time
Incorrectly filing your taxes or missing out on write-offs can cost you more money than the government requires you to pay. If you try to avoid paying taxes altogether or if you are slow to pay off your taxes, debt and even legal issues can pile up quickly. Understanding tax debt relief options is important. Be diligent in your tax preparation or look to hire a professional accountant or tax preparation company. They may cost you some money to hire, but could save you hundreds—if not thousands—in your taxes.
Overpaying for Insurance
Life, health, home and auto are the most common insurances required, and they can be expensive. Be sure and do your research to compare policies and set the deductibles that make the most sense for your situation in order to get the best possible price.
Check Your Credit Score Frequently
You should conduct a credit check on an annual basis to make sure it is good. A lot of factors can affect your credit score and you may not always be aware when something is working against it. Doing a regular check helps keep you on top of it. Having a good credit score is vital when it comes to securing loans and credit cards at fair interest rates and terms. The lower your score, the more you’ll likely end up paying in the long run.
Though some debt is almost impossible for most regular people to avoid, there are measures you can take to improve your daily spending habits, avoid costly mistakes and prevent falling into some of these major financial problems.