Avoid Bad Financial Decisions
We’ve all made financial mistakes, but fortunately many can be rectified, particularly when promptly corrected. However, there are some financial decisions that can be much harder to recover from. Here are just a few of them:
- Spending more than you make. This often occurs when overusing credit cards. The temptation is to use credit cards to pay for everything from dinners out to luxury items. While credit cards play an important role in building your credit, they also present a challenge. You can quickly find yourself maxing out your credit limit, be slapped with overdraft fees, and see your credit score drop precipitously. Ideally, credit cards should be paid off every month.
- Making an emotional purchase. Had a bad day at work? Be sure to avoid stores on your way home. While purchasing smaller items can certainly put a dent in your wallet until your next pay day, you’ll likely recover with little damage done. However, making a large, emotional purchase such as a car, a home, or an extravagant trip may do much more damage than you can quickly recover from. If you’ve just suffered an emotional upset of any kind, avoid making any financial decisions that you cannot reverse.
- Going to your friends for financial advice. Unless they’re a financial professional, chances are what has worked for them in the past will not work for you. Listen with interest about that hot stock or the latest start up to invest in, but don’t make any decisions without consulting a real professional.
- Not creating a budget, or creating a budget and not using it. A budget can guide you from your first job to buying your first home, to saving for retirement. But like any other tool, a budget will do you absolutely no good if it’s not used. Take the time to create a realistic budget and use it faithfully.
- Buying the home you fall in love with rather than the home you can afford. If you’re lucky, they’re one and the same, but for most people, their dream home is not a realistic financial investment. Don’t give up on that dream home, but put it off until you’re financially ready for it.
- Not planning sufficiently for retirement. It may seem light years away, but retirement will be staring you in the face a lot sooner than you may think. Start saving now, even if it’s just a few dollars a paycheck. That can increase as your salary increases. The important thing is to get in the habit of saving right now.
While you may not be able to avoid all bad financial decisions, avoiding most of them can go a long way towards a creating a financially secure future.