Making smart financial decisions is the primary goal of any financially responsible person. However, even the best of us can make mistakes when handling our finances. This is normal since the road to financial freedom is definitely not clear-cut, so there is no need to beat yourself up for making them. Nonetheless, you can learn from the example of other people and take the necessary steps to fix your own mistakes. Here are the three worst common financial mistakes that you can make.
Don’t Rent, Own Your Home
This is one of the most common advice that people hear right after they leave their parent’s home and strike out on their own. Rent is money that you are never going to see again and will go straight into the pocket of your landlord. Most people will tell you to get a mortgage right away so that you will not waste your money on renting. However, you also need to remember that homeowners “waste” money, too. When you own a home, you also have monthly expenses to worry about such as homeowner’s association dues, mortgage insurance, property maintenance expenses, property taxes, and homeowner’s insurance.
Owning your home is not something that you should take on, even when you are not ready. It is an asset that is difficult to liquidate – if you decide to move or relocate because of work, selling your home will make it harder for you. Plus, if something goes wrong, having a large mortgage will make it tough to find the money to pay for emergency expenses.
Enjoy Your Youth, Worry about Saving When You Get Married
Because of the increasing life expectancy these days, many of us are saving for 15 to 30 years of retirement. It is definitely better to start doing this when you are still young and your monthly budget does not include the financial burden of having a family. There are many things that you can even when you are still in your early 20’s. If you are a young business owner, for instance, investing in web traffic can lead to greater returns in the future. You can also take advantage of the immediate 100% return of an employer match on your 401k.
Debt Improves Your Credit Score
One of the things that you have to always keep in mind is that there is no such thing as a good debt. Of course, there are certainly good reasons to borrow money, but having any kind of debt will weigh your finances down. People who give this advice often also say carrying a credit balance is a good thing for your credit rating. However, your credit card actually makes up only a small percentage of your credit score. There are other factors that are taken into account such as the length of your credit history, the number of credit inquiries you have had recently, your payment consistency, and many others.
You will most likely have a better credit score if you use below 30% of your available credit. What this means is that the maximum balance that you carry on your credit card at any time should be 30% or less. More importantly, not paying your balance in full means that you have to pay for late fees – this, consequently, will bring your credit score down.