1. Not Saving for Retirement While Working
Knowing how much to save for retirement is difficult, yet an important step toward creating a worry-free future. Many avoid this topic, as it seems light-years away. However, time sneaks up on everyone. Before you know it, you have passed your peak earning years and will start to feel panic and a bit of fear as to how you’re going to make up for it.
The truth is that if you start saving even $100 per month at an early age, you will have nothing to worry about. Let the Baby Boom generation be a lesson to all. Since the group didn’t heed this lesson early on, many boomers are having to work until age 70 and longer. Expenses have more than doubled over the years and income has remained the same or even reduced. It’s a panic that can be avoided.
2. No Family Budget
Let’s say you’re the person in the household who actually pays the bills. Each month you find yourself pushed to pay bills and have money left over. Do you struggle alone or let your family members know the situation? Do you put everyone on a budget or figure you will let the chips fall where they may?
Creating a family budget is not that difficult and will do wonders for your health and stress-level. Start by having everyone in the family record their daily spending for a month or even a week. Compare the totals with outgoing debt expenses and see which extraneous items can be eliminated or reduced. Hold family members accountable by reducing their next month’s spending allotment with the amount they were over, as it will immediately force the issue. Before you know it, everyone in the family will be working together and the family budget will continue to do its job.
3. Using Home Equity Incorrectly
Many people who have equity in their home from paying down their mortgage, use home equity loans like it was free money. However, what they don’t take into consideration is that they have added to the overall mortgage by removing the asset they created from getting a lower balance.
According to an article in Bankrate.com, many use their equity loans to pay for college, pay down credit card debt and more. Ray Cavazos, Money Management International spokesperson, gives his perspective, “With home equity loans, you are placing your home on the line. If you default on this loan, you could lose your house.”
4. Buying a New Car
5. Wasting Discretionary Income
6. Not Having Emergency Fund
7. Saving Before Paying Debts
Some financial guru along the way encouraged people to sock away money no matter what the financial situation. However, we beg to differ. Consider this: if you are paying a higher interest on debts than the interest you are making on your savings account, then you are actually losing money.
It’s a simple math equation. For example: if you are paying 20 percent interest on your revolving credit card balance of $2,000 and your savings account is only making 2 percent, your money is much better spent paying off the credit card balance until it hits a zero balance. If you can’t pay it off in a couple of payments, then be sure to pay more than the monthly minimum – an amount that is intended to keep you in debt. Once the debts are paid off, you’ll have more than enough money to start creating your wealth account. Debt elimination is a huge step in creating wealth.
8. Mortgage Loans
If you have ever watched the show House Hunters on HGTV, you know that 99 percent of realtors will encourage buying a home with a higher sales price that the buyers originally intended. Why? Because they are paid through commission-only, so the higher the price, the higher their portion.
Not only will they encourage it, they will justify it by telling you it is a financially sound plan because you will get a bigger interest write-off on your taxes. What they don’t tell you is that unless the sales price is in the millions, you may only be saving a few hundred extra on your taxes. What you are left with is a hefty mortgage that often puts a strain on your finances.
9. Credit Card Balances
Using credit cards for essentials is the first huge credit card mistake. Not paying off balances as you spend is the second. Did you know that when you don’t pay off your balances, you wind up paying around three-times more than the original amount of the item?
The credit card companies are counting on it, in fact, as that’s how they make a substantial amount of interest. According to debt elimination expert Kevin Lane, “The same money you are paying in interest could be going into your pocket. You would actually be building wealth instead of handing money over to credit card companies.