Here we’ll take a look at some of the most common financial mistakes that often lead people to major economic hardship. Even if you’re already facing financial difficulties, steering clear of these mistakes could be the key to survival.
1. Excessive and Frivolous Spending
Great fortunes are often lost one dollar at a time. It may not seem like a big deal when you pick up that double-mocha cappuccino or have dinner out or order that pay-per-view movie, but every little item adds up.
Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra credit card or auto payment or several extra payments. If you’re enduring financial hardship, avoiding this mistake really matters—after all, if you’re only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever.
2. Never-Ending Payments
Ask yourself if you really need items that keep you paying every month, year after year. Things like cable television, music services, or high-end gym memberships can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning yourself from financial hardship.
3. Living on Borrowed Money
Using credit cards to buy essentials has become somewhat commonplace. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries, and a host of other items that are gone long before the bill is paid in full, it’s not wise financial advice to do so. Credit card interest rates make the price of the charged items a great deal more expensive. In some cases, using credit can also mean you’ll spend more than you earn.
4. Buying a New Car
Millions of new cars are sold each year, although few buyers can afford to pay for them in cash. However, the inability to pay cash for a new car can also mean an inability to afford the car. After all, being able to afford the payment is not the same as being able to afford the car.
Furthermore, by borrowing money to buy a car, the consumer pays interest on a depreciating asset, which amplifies the difference between the value of the car and the price paid for it. Worse yet, many people trade in their cars every two or three years and lose money on every trade.
Sometimes a person has no choice but to take out a loan to buy a car, but how many consumers really need a large SUV? Such vehicles are expensive to buy, insure, and fuel. Unless you tow a boat or trailer or need an SUV to earn a living, it can be disadvantageous to purchase one.
If you need to buy a car and/or borrow money to do so, consider buying one that uses less gas and costs less to insure and maintain. Cars are expensive, and if you’re buying more of a car than you need, you might be burning through money that could have been saved or used to pay off debt.
5. Spending Too Much on Your House
When it comes to buying a house, bigger is not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance, and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?