Biggest Money Mistakes – Personal Finance Basics
Mistakes are made with money everyday by everyone when it comes to personal finances basics. The wealthiest people in the world make mistakes, the middle class makes mistakes and the poor make money mistakes. Therein lies the biggest problem. When the less money you have, the more damaging those mistakes are. What are the biggest money mistakes people make? Let’s find out.
1. Neglecting Your Credit Scores
These three-digit numbers are more important today than ever, specially today with more and more people defaulting on their debts. Money lenders are extremely cautious about to whom they will lend money.
Lenders are looking for low-risk customers. If you have a great credit score of 750 or above, banks will fall all over themselves for your business. A high credit score also means that they will give your great rates on mortgages, car loans, personal loans and credit cards. Insurance company’s and landlords also use credit scores to determine quality applicants, that’s why it is important to keep your credit in good shape.
Do you know your credit? There are many resources that can show you. Click here for a free credit score estimator.
In my next post I will show you how to improve your credit scores when it comes to personal finances basics.
2. Carrying Credit Card Debt
If you carry a balance on your credit card not only are you paying exorbitant interest rates but your may also be affecting your opportunity to get a mortgage or other type of loan and you are damaging your credit score. If you want to fix your personal finances you need to eliminate your credit card debt. If you need help in eliminating your credit card debt get it. You won’t have any leverage with lenders if your credit is in poor shape and the sooner your get rid of your credit cards the better you will be.
http://howtomanagemoneytips.com/five-credit-repair-strategies-to-improve-your-credit-score-guest-post/
3. Too Much Home or Auto Debt
In an ideal world you should not exceed 30% of your gross income when it comes to how much you are paying for your mortgage. On that same line of thinking, your transportation expenses should not be more than 10% of your income (that includes insurance, fuel and maintenance). If you are higher in one or both of those categories, you are in over your head when it comes to home or auto debt.
What to do? It may be time to rethink where you are living. If you can’t afford a house with a 30 year fixed rate mortgage, you can’t afford the house. If you can’t afford a 60 month loan for a vehicle, you can’t afford that car. These are simple personal finance basics you should know.
4. You Tapped Into Your Emergency Fund or You Don’t Have an Emergency Fund.
The value of having cash in hand is becoming more and more valuable every day. An emergency fund is exactly what it sounds like. It can help pay for unexpected expenses such as car repairs and it could cover your bills if you lose your job. Most people aim to have an amount that is equal to three months living expenses. For families it is wise to be able to cover six months. Obviously the more you can afford, the better. If you don’t have an emergency fund, you should start creating one. Start by setting a goal of creating a balance of $1,000 and then go from there.
Making mistakes with your finances is often inevitable. The less often you make those mistakes the better off you will be. If you are able to avoid these four crucial errors, you will start to enjoy the financial freedom you deserve. Trying to live within your means and staying on top of your debts and your credit are the personal finance basics we should all take care of. If you start to set goals and tackle one of these things each month you will be rewarded financially more quickly then you think.
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Filed under: Personal Finance
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Thank you for these tips.
This is the first time I read about a rule of thumb for transportation expenses. It does make sense.
Do you count the down payment in that percentage also? Suppose I buy a 10K€ car and pay 5K€ upfront. Would you count those 5K€ in your percentage as well?
I have just replaced my car and I have started putting some money into a saving account each month for my next purchase (in 5 to 10 years hopefully). Would you count that as a transportation expense as well?
Hey Sefano,
First of all, that is a great question. I feel that the most important thing to look at is cash-flow. That is, how your cash flows from in to out. The guideline of 10% pertains more to your monthly income, so the down payment would not count as the percentage.
If I am saving for something I count that in my savings category which should be anywhere from 10-15% based on what you are saving for. Generally a good number to shoot for is 10% to retirement savings and 5% for special purchases, and in your case that would be your car.
I created a spreadsheet to track your expenses then compare it in a pie graph of where you should be. It is a great visual for keeping track of where you are and I use it on a monthly basis. You can sign up and get it for free at: http://www.howtomanagemoneytips.com/ebook2.html
You can unsubscribe at any time so if you just want the gift there’s no need to worry.
Remember, if you are going to make any financial decisions it is best to consult with a licensed financial advisor first. I am not one nor do I claim to be, I have just gotten decent results so far in my life.
Hope this helps
Brandon