Managing finances properly is mainly common sense. While we’ve all made financial mistakes, most of those mistakes are easily rectified, particularly when promptly corrected. However, there are some financial decisions that can be much harder to recover from. Here are just a few of them:
- Spending more than you make. This usually occurs when overusing credit cards. The temptation is there, particularly for those fresh out of college, to use credit cards to pay for everything from dinners out to luxury items. While credit cards play an important role in building your credit, they also present a challenge, particularly to those that enjoy spending money. You can quickly find yourself maxing out your credit limit, be slapped with overdraft fees, and see your credit score drop precipitously. Ideally, any expenses placed on a credit card should be paid off at month end. While this may not always be the case, it should be the rule, not the exception.
- Making an emotional purchase. Had a bad day at work? Be sure to avoid stores on your way home. While purchasing smaller items can certainly put a dent in your wallet until your next pay day, you’ll likely recover with little damage done. However, making a large, emotional purchase such as a car, a home, or an extravagant trip to Europe may do much more damage than you can quickly recover from. If you’ve just suffered an emotional upset of any kind, avoid making any financial decisions that you cannot reverse.
- Going to your brother-in-law (or sister-in-law) for financial advice. Unless they’re a financial professional, chances are what has worked for them in the past will not work for you. Listen with interest about that hot stock or the latest start up to invest in, but don’t make any decisions without consulting a real professional.
- Not creating a budget, or worse, creating a budget, but not using it. A budget can guide you from your post-college first job to buying your first home, to saving for retirement. But like any other tool, a budget will do you absolutely no good if it’s not used. Take the time to create a realistic budget and use it faithfully.
- Buying the home you fall in love with rather than the home you can afford. If you’re lucky, they’re one and the same, but for most people, their dream home is not a realistic financial investment. It certainly doesn’t mean to give up on that dream home, but to put it off until you’re financially ready for it.
- Not planning sufficiently for retirement. It may seem light years away, but retirement will be staring you in the face a lot sooner than you may think. Start saving now, even if it’s just a few dollars a paycheck. That can increase as your salary increases. The important thing is to get in the habit of saving right now.
While you may not be able to avoid all bad financial decisions, avoiding most of them can go a long way towards a creating a financially secure future.
*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2023 Advisor Websites.