A New Year brings a clean slate for you. You don’t want to repeat the financial mistakes you made in 2015. Financial management is something most of us aren’t taught about, so this New Year, it’s time to keep your clean slate.
Here are 4 money mistakes you can avoid to ensure a financially stable future in 2016.
1. Living above your means
Living within your means is a basic money sense. The reason for this is that more money makes people spend. Despite having a good salary people go broke, because they spend lavishly – beyond their means. Earning a fat paycheck now does not mean your future is secure tomorrow.
2. Investing only in one savings account
Putting all your eggs in one basket ensures that it is spent all at once. When making big financial decisions like buying a house, car or sending your child to college, money is drawn from the one savings account. Later if the economy faces a crisis or you incur debt, your backup is exhausted and you are unable to recover.
3. Investing in an Asset/Liability
Earning a fat paycheck gives people choices in life. They may choose to invest in an asset or a liability. People mistakenly believe that commodities, such as a house or a car, are assets. These are liabilities. Assuming that real estate prices go up and homeowners in a tough financial situation sell their houses, the homes are liabilities not assets. They may consider selling their car in the future as a debt payment. Simply put an asset is something that puts money in your pocket. A liability is something that makes your pockets lighter. Maintaining costs of cars and homes only lightens your pockets. Hence they are definitely liabilities in the short term.
4. Putting off your debts
Sam takes a loan to buy a house and a loan to buy a car. As his wife is expecting, he opens a college fund for the baby. There are three separate payments to be made monthly by him. He puts off two payments and focuses on the payments for the house. As time passes the interest keeps building on the other two payments. Sam finds himself in debt. What’s more his son is now 18 and is ready for college. The fund deposit is empty. It’s hard enough to pay off one debt and Sam has taken three separate debts upon himself. The illusion lies in the fact that the monthly payments seem meager at first. But over a long haul the interest chews away at your salary.
Sam takes a home and a car loan, and has a credit card account. Now, he has three separate payments to make monthly. Sam decides to focus on the credit card payment and ignores the other two. Over time, the interest builds on the home and car loan, and later on, those debt accounts are charged penalties and fines. Now Sam can’t manage the debts owed.
Not regularly paying your debt can pull you into a debt hole.
Debt consolidation might have been one way for Sam to solve his problems. However consolidating his debt with his home equity might have made the payment too large. Credit can be easily damaged and people might have to file for bankruptcy in some cases. Make sure you make all the right financial decisions. Don’t be Sam.
Everyone makes money mistakes, that does not mean you should too, and you are not bound to repeat your 2015 mistakes. Use these tips to keep your New Year’s slate clean.
