Avoid financial disaster by being prepared
Sara Gilbert/The Coloradoan (Fort Collins, CO)
3 December 2011
One good thing about the current economic downturn is more people desire to do a better job of managing their money.
Prevention is worth a pound of cure, and this is especially true when it comes to money. Check through the following list to see if there are some areas in your financial life you could be managing better.
Avoiding these pitfalls will help you be more financially secure.
» Neglecting your credit scores: Regularly review your credit report (free from annualcreditreport.com). Check for errors to improve your credit score.
» Equating monthly payments with affordability: Monthly payments do not reflect the true cost of ownership. A car, for example, requires insurance, gas, repairs and maintenance, which need to be included when deciding affordability. Lower payments also often reflect a longer repayment time which means increased interest being paid which increases the cost
of the purchase.
» Overpaying on a mortgage: Refinancing often can save thousands of dollars during the life of the mortgage. Lowering a rate often can justify the cost of refinancing. There will be closing costs; but if you plan to stay in the home for five years or longer, refinancing might make sense.
» Overpaying taxes: The goal should be to match your payroll withholdings as close as possible to your expected tax liability. For example, a tax refund of $3,000 is too high and could have been invested throughout the year instead of allowing the government to hold it for you.
» Making only the minimum payments on credit cards: Making the minimum payment adds a lot of interest to your total payment and extends the time to pay off the debt. Commit to paying more than the minimum.
» Not living within your means and overspending: If you can’t live within the constraints of the money coming in, you’ll end up in debt. The first step to gaining wealth is by spending less than you earn. It’s vital to making any financial progress.
» Failure to budget: The only way to get a handle on your money is to create a budget. It’s impossible to track everything in your head. Try tracking your expenses even for one month to see where your money actually goes.
» Lack of goals: If you don’t know where you are going, how will you ever get where you want to go? Without goals you have no benchmark. Remember, goals need to be specific, measurable and realistic. Saying you want to retire with a lot of money is not a goal; it is a dream.
» Always rescuing others: Most loans to friends and family are never paid back. If we always bail out our friends when they need money, they won’t learn important lessons about living within their means.
» Inappropriate amount of savings: Keep between three to six months of expenses on hand in your savings so you can weather an interruption of income or emergency without taking on more debt. If this sounds like too much, start small and save something every month until you can save more.
» Don’t borrow from your 401(k): Consider your 401(k) funds to be untouchable and harmful to your well-being if you choose to play with them.
» Deriving self-esteem from possessions: Be yourself and make smart decisions about your future. Don’t try to keep up with the Joneses.