Top 10 Ways to Screw up Your Finances
Everyone makes mistakes with money. Some of the most common ways to screw up your finances include:
1. Unnecessary Spending
Impulse purchases, or unnecessary spending (clothing or the fast food pit stop on the way home) can screw up the family budget. This is especially true if such purchases occur often.
The best way to prevent unnecessary spending is to make a budget and stick to it; avoid any unplanned, unbudgeted purchases.
2. Falling Behind on Bill Payments
Allowing yourself to fall behind on even one payment of one bill can be detrimental to your finances. Believing you can just catch up next time almost guarantees financial problems a short way down the road.
3. Buying What You Cannot Afford
Many people make big mistakes when buying and spending. When people buy houses, cars, or other items for which they may need financing, they do not always stop to think how they are going to pay for it .
Taking on a mortgage or loan is one thing, but remember that loans come with interest, so you have to pay back more than you borrowed. Unless you have a feasible payment plan, you must try to resist the purchase.
4. Applying for More Credit Cards
While obtaining credit cards can be beneficial for building a credit score and allowing you to apply for a mortgage or other financing in the future, they can also land you in severe debt. Having a credit card means taking on a responsibility you must be certain you can cover with your income. Shop around before applying and aim for the lowest annual percentage rate (APR) and lowest interest cards.
Do not be irresponsible with your card once you do have one. A sure way to ruin your finances is to throw a party or go on a shopping spree once you have your card in hand. Avoid all tempting offers of unnecessary spending, and monitor your credit rating and reports at sites like Experian or TransUnion.
5. Not Safeguarding Against Identity Theft
Many believe identity theft will not happen to them. Not only can it happen, but victims of identity theft are often not even aware it has happened until later. Identity thieves can leave victims with serious financial debts and other problems. Investing in and obtaining identity protection from organizations such as LifeLock can be wise.
6. Investing in Income-Consuming Assets
Investing in stocks and bonds can be profitable for some people, and can even earn them a living. However, if you invest in income-consuming assets, then you will only harm your finances. An income-consuming asset is something that costs more to maintain than it generates in income.
Such an asset might be an old car that you are trying to refurbish, if you spend more to fix it than you could earn by selling it. These types of assets will harm you more than help you.
7. Overlooking an Emergency Fund
Emergencies happen at any time. Perhaps an act of nature, such as a hurricane or tornado, damages your home, or you find yourself in need of a major car repair. You should always expect the unexpected, so an emergency fund is worth saving for.
8. Not Balancing Your Checkbook or Budgeting
Balancing your checkbook or budgeting your household expenses can seem boring, so people fall behind on the task, resulting in overspending. Taking time out of the day to write down what you have spent and making some projected expenses at the beginning of the week can be helpful in managing your finances. You might even find the process helps you to save more money.
9. Overlooking Certain Tax Deductions
When April comes around each year, people are glad to complete their taxes, but they can be negligent when it comes to reading through the eligible deductions. By taking the time to do so, you might be able to find certain deductions you are eligible to claim to help your finances in the long run.
Save your receipts, because you never know what differences might occur from year to year. Tax software such as TurboTax can help you find all your necessary deductions.
10. Taking a Pay Cut
In tough economic times, you might be asked to accept a pay cut or lose your job. Present your case when asked, and if you do have to take the cut, prioritize in other areas to make up for the loss.
