Being financially strong and independent is a goal that most people have. While most people do have the financial capability of becoming financially independent, most people will fall victim to common financial pitfalls that end up costing a lot of money over time. There are five common financial pitfalls that should always be avoided.
The first common money pitfall that affects people is refinancing their mortgage. While refinancing a mortgage could be a great way to save money if you receive a reduced interest rate, some people end up making poor decisions when they refinance. People that have equity in their homes will have the option of receiving cash out on their mortgage refinance. Those that take the cash out of their home for the wrong reasons could end up being left with a higher mortgage payment and an underwater mortgage if their home values go down in value.
Another common pitfall would be to take advantage of credit consolation services. While it is clearly important to have a good credit score, all people should take caution when signing up for a consolation service. These consolation services will promise that for a hefty fee, they could end up improving your credit score. While they may make efforts to improve your credit score, the credit consolation service providers will do nothing that you couldn’t do on your own. By paying down your unsecured and revolving debt accounts and by paying all of your bills on time for twelve months or more, you will see a dramatic improvement to your score.
Buying a New Car
The third common financial pitfall is buying a new car. Next to buying a home, buying a car is the most significant purchase most people will ever make. While most people would like to purchase a brand new car, it ends up wasting a lot of money. While new cars are obviously going to be in the best possible condition, they typically cost twenty to thirty percent more than the same model from the previous year would cost.
Furthermore, used cars that are just a few years old can also qualify for warranty packages from the dealerships, which provides the same security against mechanical flaws.
Overspending on Frivolous Items
Possibly the most significant financial pitfall that people fall victim to is overspending on frivolous items. In our consumer-based society, it is easy for people to become obsessed with the latest gadgets, fashion trends, and other goods that cost a lot of money. While people should treat themselves once in awhile, most people end up feeling that owning these items is more of a right than a luxury. People that are frequently purchasing the newest gadgets and products on the marketplace will normally spend well beyond their means.
Buying Too Much House
During the sub-prime lending era, one of the biggest mistakes that people made was spending too much money on their homes. People naturally always want the best thing that they can possibly afford. When it comes to buying a home, many people end up purchasing a home that is outside of their budget. For many people, the biggest issues is that they were not aware of what all of the costs would be. Many people end up being surprised by higher than anticipated mortgage insurance, real estate tax payments, or increased interest rates on their mortgages when the interest rate resets.
In conclusion, staying financially stable can be very challenging. To be financially strong, all people should try to avoid five common financial pitfalls.
About the Author: Rick James is a financial blogger who writes on not only finance, but also business and health topics as well. He can be found browsing the WSJ and NYT on a daily basis reading the financial sections. Rick has done a lot with finance including legal fiance advising in firms similar to the lakeland medical malpractice attorney. You can read more writing from rick at paidtwice.comPersonal Finance