Building a secure financial future takes patience, discipline, dedication and sometimes a little bit of sacrifice. However, the rewards are ultimately worth it to know that you can enjoy a comfortable, secure life. Unfortunately, along the way, there are many potential fiscal pitfalls into which individuals can fall. To preserve, consolidate and grow your wealth over time, be on the lookout for any of these five financial traps:
1. The Credit Trap
Whether you’ve found yourself in a financial emergency, or you’re in need of a quick cash injection before payday, it’s crucial that you don’t fall into one of the many credit traps. From payday loans through to hidden fees and high interest rates from banks and financial institutions, there’s always something or someone ready to grab your purse and shake it empty.
To avoid falling into the credit trap, consider low-interest small cash loans and microloans. These can often be safer alternatives to firms that offer a little bit of money with a whole lot of interest and inflexible repayment conditions.
2. Buying Something You Can’t Afford
We’ve all fallen in love with something we know we can’t afford. Then, before you know it, you’ve handed over the credit card and now own that expensive item. While the emotional connection is something money can’t buy, the fallout from purchasing something that’s not within your budget can be astronomical.
The average American’s credit card debt is over $6,000, and it’s only getting higher. If you aren’t able to pay off your balance within the month, high interest rates kick in, and you’ll find yourself barely paying off more than the interest.
3. Not Planning for Your Future
Getting old is inevitable, but if you want to be old and comfortable, then the time to start planning for your retirement is now. Too many people are putting off saving for their retirement because it’s “years away.” The truth is, we’re living longer than ever before. With an average life expectancy of 78.7 in the US, putting away a nest egg will ensure you can afford all life’s pleasures into your golden years.
4. You Aren’t in Control of your Money
If you only pay attention to your bank account is when it’s empty, you’re asking for trouble. Not being in control of your money is not a financial trap into which you want to fall. It’s crucial to know how much you’re earning, how much you’re spending, what bills you have, what luxuries you can afford, and what you are saving. Only a third of Americans have a financial plan, but it’s crucial to avoid leaving you short and in debt.
5. You Buy A House You Can’t Afford
House hunting must be a balance of financial sense and emotion. Sometimes the emotional pull of the American Dream kicks sound reason to the curb. When you’re entering the market for a new home, it’s critical that you aren’t pushing your finances to the limit. If you’re going to be living on rice for the next 30 years, with no guarantee that you will be able to cover any emergency payments such as car breakdowns or medical bills, it’s not a wise investment. Choose the house with your heart, but ensure it’s within your budget. If it’s not, walk away.
Money is 80 percent behavior, 20 percent reason, according to America’s money expert Dave Ramsey. It’s what you do, not what you know, that makes all the difference to your financial situation. Be smart with money and avoid financial traps that can set you back decades.