4 Big Money Mistakes To Avoid
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Managing your money can be complicated, and sometimes mistakes are inevitable. But there are certain mistakes that can be particularly costly to your personal finances. Here are four big money mistakes that you absolutely want to avoid.
1. Living beyond your means If you spend more than you earn, you will never get ahead financially. You will find it difficult to save money on emergencies or retirement. Instead, you have to borrow money to finance your lifestyle and get further and further behind over time.
To avoid this, make sure that your expenses are well below your income. Ideally, you should limit your expenses – including needs and wants – to no more than 80% of your income so that you can save the rest.
2. Not Living on a Budget If you don’t have a plan for what to spend your money on, chances are you won’t end up spending it as wisely as possible.
In this context, it can be that you spend too much money on things that are actually not that important to you, because you do not know how much you are actually spending on them. And you could let yourself fall short when it comes to achieving the goals that are important to you.
Creating a budget doesn’t have to be difficult, and there are a ton of different budgeting methods out there so you can find one that works for you. The most important thing is that you choose a method and stick to it so that your budget is a roadmap for spending your money in a way that is in line with your values.
3. Take on a lot of high-interest debt Borrowing money sometimes makes sense. For example, if you’re getting a soft loan to start a business that will help increase your income, it can be a good thing.
But there are certain types of high interest loans that are really difficult to repay. When you take out these types of loans or have a debt on a high interest rate credit card, you tie a large chunk of your future income to interest costs – which can make living within your budget really difficult in the future.
Whenever possible, you should avoid taking out a loan unless you are getting a very low interest rate and you are taking out a loan for something that will improve your long-term financial situation. And if you do need to take out a loan, consider cheaper options, such as a personal loan, rather than expensive options.
4. Buying a house you can barely afford When you take out a mortgage to buy a house, you are taking on a debt that will take decades to repay.
If you hit your budget to buy a home that is at the high end of your price range, the large mortgage payment you commit to could affect your ability to do anything else with yours during the decades that you pay back your loan Money to do. And you could find yourself at higher risk of foreclosure and stressed out all the time having to pay the bills.
A more expensive home also comes with higher expenses, including more expensive utility bills and property taxes, which can only make your financial problems worse.
Fortunately, most of these mistakes are preventable – and they can be corrected even if you’ve already made them. For example, refinancing the debt could help you deal with high-interest loans. And you could move anytime if your mortgage is a burden. The key is to realize that any of these four monetary mistakes could cost you your financial security and work accordingly to avoid them.
Chris Bieber has no position in any of the stocks mentioned. It has been translated so that our German readers can take part in the discussion.
The Motley Fool has no position in any of the stocks mentioned.
Motley Fool Deutschland 2021
This article first appeared on The Motley Fool
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