According to reports, the world is succumbing to massive debt. Ageing populations, as well as increased life expectancy and shrinking working pools across the globe, are resulting in a massive debt burden. So with the economies of so many countries uncertain at best, regular folks can’t afford to make the financial mistakes that previous generations could sometimes get away with. In short: it’s time to walk a financial straight line while simultaneously preparing for the future. Easier said than done, right? Well, here’s six mistakes many folks are currently making that hinder financial success—and each of them can be remedied right now.
Not taking advantage of technology
Those of us who are old enough to remember the computers of the ‘90s likely equate personal-finance-management software with programs like Quicken. These were usually cumbersome spreadsheet tools that had steep learning curves and cost a pretty penny to boot. But today there is no reason not to have a solid financial-management app installed on that most ubiquitous of modern computers: the smartphone. Each year these apps become more and more user friendly, and they do everything from create monthly budgets to manage bank accounts and retirement plans. And the best of these are often free!
Poor handling of credit-card debt
No one’s arguing against building good credit, but when people start using credit cards just to get by then it becomes a case of the tail wagging the dog. Of course the great error of credit-card debt management is only making the minimum payments and watching helplessly as the balance never gets lower. But another, lesser-known credit-card sin involves paying only marginally extra on those bills. People may think that paying just a bit extra on every card balance is a good thing. It isn’t, because it pays down the debt at a glacial pace. A more in-depth tool to help with multiple card debts can be found in the debt snowball calculator. This method has helped countless folks get out from under those crippling mountains of credit-card debt. The system focuses on paying off the largest debt first, which then creates momentum or a “snowball” effect, which then carries over to the other bills.
Falling into bad borrowing habits
Once enough financial mistakes have been made, it’s only a matter of time before a quick infusion of cash becomes necessary. In these situations many people will start borrowing against an existing line of credit. Those who don’t have access to traditional bank loans and credit often resort to cash-advance lending agencies. These come in many forms including secured loans on a home or car title, as well as payday loans. A payday advance may look like a good idea in the short term, and indeed it’s possible to apply for these loans quickly online, but most borrowers make a mistake by not reading the fine print. Interest rates are often sky high with these lenders, and they tend to be inflexible in their repayment schedules. Those who must take out a payday advance should only deal with lenders with capped interest rates and who work with their borrowers on repayment plans, like Club Money.
Having no life insurance/having the wrong life insurance
The only thing just as bad as not having life insurance is having the wrong kind of policy. Those with dependents should always carry life insurance, regardless if they think they can afford it or not. But keep in mind that having the wrong life-insurance policy can be just as bad as throwing money away. Insurance brokers usually try to sell anyone on whole-life policies, but this can be a money waster, especially for younger folks with kids and lots of expenses. A term policy for up to 10 times the holder’s salary is a good way to provide for dependents.
Paying more for home insurance than you need to
Just like it’s possible to waste money on an overly expensive life-insurance policy, the same exact thing can happen with home insurance. The sad thing is that most people are already paying higher premiums than they have to. The solution? Increase the deductible twofold and bring down those monthly payments ASAP.
Not understanding tax breaks and liabilities on investments
Those who don’t make their living running multi-million dollar hedge funds and derivative investments tend to invest on smaller scales. And there’s nothing wrong with that. Regular, responsible investors often know enough to setup mutual funds and funnel some personal cash into tax-deferred accounts like 401(k) plans and IRAs. The problem comes in overlooking the tax breaks. It’s always a good idea to bone up on modern tax rules to know when dividends can and cannot be taxed as capital gains.
If the average Joe or Jane avoided even half of these errors, he or she would be staring at a much brighter financial future. By heeding all of them, it’s possible to ensure advanced years that are truly golden.
