Without even realizing it, you could be sabotaging your finances, and you may not notice what’s happening until it’s too late. From everyday money habits that could slowly drain your bank account, to isolated financial decisions that could affect you for years to come, the following are some of the common ways that consumers often sabotage their finances:
Living beyond your means
Being realistic about what you can afford is important for many reasons. Not only does it allow you to save more, but it can also keep you from getting into debt if your financial situation changes. Whether it’s rent or car payments that are too high, or too much shopping and purchases you know you shouldn’t be making, it’s a good idea to take a hard look at your finances and evaluate where your money is going. Are you stretching every last dollar to make your current lifestyle affordable, or are you spending comfortably? It’s important to have a little wiggle room, and if you’re living beyond your means, you could be setting yourself up for a financial disaster.
Although there is a lot of insurance out there that most people could do without, there are some bare basic policies that everyone should have. This includes homeowners insurance if you own your home, car insurance if you have a car, and health insurance. Without some of these must-have insurance policies, you could be setting yourself up for substantial financial loss if the unpredictable happens. Instead, shop around for affordable policies and make sacrifices where you can in order to make it work. For example, if you can’t afford health insurance, but you’re paying for a lot of non-essentials (cable television, restaurant visits, etc.) you may need to prioritize your spending in order to fit insurance premiums into your budget.
If you’re stretching every last dollar in order to pay your bills and you’re not living beyond your means, saving money may be the furthest thing from your mind. However, most people can afford to save—even just a little bit each month—by making some cutbacks. It doesn’t matter how small the contribution is—start saving now, if you haven’t already. Eventually, your savings will grow, and there may come a day when you really need that money. Instead of turning to credit cards or risky loans that could put you in an even tougher financial spot, that emergency fund can end up being a lifesaver.
Only making minimum payments on your credit cards
Making just the minimum payments on your credit cards is certainly better than nothing, and will keep you from defaulting. However, if you’ve racked up a lot of debt and you’re just paying the minimum payments, you aren’t doing much for your credit score or your finances. If your credit utilization rate is high and stays that way because you don’t pay it down, your credit score will suffer. Additionally, you’ll pay a lot more in interest because those minimum payments mostly go towards interest charges. If you make some cutbacks so that you can afford to pay just a little bit more than your minimum payments each month, you’ll begin to see your balances go down faster.
Taking out too much in student loans
Many students can only afford to pay for college by taking out student loans. However, many students fall into a loan trap by borrowing the entire amount they’re offered, and continue to keep borrowing every semester. As a result, many young adults graduate and are in far more debt than they really need to be, and this amount of debt far surpasses what they actually spent on college tuition. If you have to turn to student loans as a last resort, that’s one thing—but be very selective about the amount you borrow and think twice before taking out additional student loans. Otherwise, this is a financial mistake that can potentially haunt you for years to come.
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Nothing above is meant to provide financial, tax, or legal advice. You should meet with appropriate professionals for such services.