How many times have you heard stories about celebrities going from broke to rich to broke again? How about professional athletes? It’s hard to hear these stories without cringing and thinking “Boy if I had that much money, I’d be set. I’d never lose it all like that!”. The truth is, this is easier said than done and it is way easier to lose all of your hard earned cash than you would think. Because of this very reason, we’ve decided to put together a list of the top 6 financial mistakes you can avoid today.
Society as a whole has always pushed the idea that you should enroll in the most prestigious college that will accept you as a student. The issue with this is that typically the more prestigious the school it is, the more it also costs. Did you know that without extraneous circumstances, you can not discharge student loan debt while financing for bankruptcy in America? You might want to rethink going to that ivy league school after all! Make sure your future career’s income will be enough to cover the debt you’ll be taking on.
According to Student Loan Hero, you should never take a loan for more than your estimated first year’s salary. Doing so could very easily lead you down a snowballing path of extreme debt. It’s common to hear about younger folks getting buried in debt due to taking on too many student loans for a career path that doesn’t support the cost. This can delay everything in your life whether it be marriage, buying a home, or having children.
If you manage to avoid the blunder that is student loans, the next most common mistake we see in personal finance is when it comes time to buy your first house. When you go to the bank to request a mortgage quote, lenders will quote you the absolute max amount of loan they are willing to give you. We can tell you with absolute certainty that you pretty much never want to use the entirety of what is offered to you.
Redfin has a great calculator that will help you determine how much home you can truly afford based of your salary and current debts. You’ll also want to try and wait for a good time to buy. Look into whether or not it is currently a “buyer’s” or “seller’s” market and let that weigh into your decision making. The worst thing you can do is buy a home when prices are heavily inflated and then have it become a buyer’s market when it is time for you to sell your home.
The vast majority of people become extremely complacent after getting their first professional job. So much so that they stop looking for any opportunities to make more money, whether it be through investing or trying to trade up to a better job. The best time to job hunt is when you already have job security locked down. You might be happy with your current income, but there could easily be a job out there looking to pay you much more to do the same or less. Also, you should be making sure you are maxing out your retirement investments as well as investing in mutual funds, bonds, etc.
When used properly, you should never have rolling credit card debt except in absolute emergencies. It’s way too common these days to find people with exorbitant amounts of credit card debt compounding month after month. If you use credit cards right, you can actually make money from them through cash rewards and bonus points.
But the truth is that most Americans don’t properly use their credit cards. They don’t fully pay off the balance and then find themselves paying 15% to 25% interest each month on their charges. Would you accept an auto loan or mortgage with an interest rate that high? We sure wouldn’t! So why is the average American okay with this for their credit cards? Take advantage of credit card companies, don’t let them take advantage of you.
This is a huge, huge mistake commonly made when it comes to helping out a family member or a close friend. Someone you know and love will approach you and ask you to cosign their loan since their credit is not good enough to get the loan on their own. They’ll swear that they’ll never miss a payment and it will never effect you. But the truth is that more times than not, your friend or family member WILL run into issues and it will negatively effect YOUR credit now too.
The best thing you can do for yourself is to learn how to say “no”, and always say “no” when it comes to cosigning loans, lending money, etc. Your personal finance is just that, personal. Your friends and family will understand, and they’ll get over the initial feeling of rejection from you saying “no”.
We saved this one for last because you can certainly go through life without budgeting. However budgeting is a tool that can help improve your financial health immensely. For new adults, budgeting can save you from spending your savings for bills on fancy meals and clothes you don’t need. A budget can stop you from having $500 and thinking you’re rich on Monday when you have $450 in bills hitting your accounts on Tuesday.
Sitting down and laying out simple rules for your money will make it easier to save cash in the long run. Give each dollar a “job”, so to speak. Some of those dollars might have a job that consists of being thrown at strippers and buying beers, but that’s okay as long as you know you have enough dollars to afford it.
Avoiding these simple yet devastating financial mistakes can save you from a lifetime of financial hardships. Repairing your credit and increasing your financial stability is essential to living a happy life of financial freedom.