Financial literacy isn’t exactly taught in schools, and some people may fare poorly in money management when they are older. With the high cost of living and inflation, people who manage money poorly may have a harder time. A few financial pitfalls are enough to take you off track. Here are a few of them and how to avoid them.
Spending unnecessarily
There’s nothing wrong with buying things you need and a few things you want, but you should not overdo it. Try to cut down on unnecessary expenses. If you’re struggling financially, then you shouldn’t buy luxury items when you can get them for cheap with the same value. An NY fee-only financial planner can help you come up with a budget that suits your situation.
Soon enough, you’ll be able to spend more. For now, budget tightly.
Credit cards
While credit cards are recommended to build your credit score, you shouldn’t use them for nonessentials. Because of the ease of using credit cards, most people do not realize that the interest rates can rack up the price of the item. The average interest rate is around 24%, so imagine how much this will rack up in a few years of spending with your credit card.
Always pay cash or use your debit card for non-essentials and then you can use your credit card for essentials. It also helps to pay the bill at the end of the month without letting it carryover over to the next month. Longer it takes to be the higher your interest rates so take note.
Car loan
A car is an essential investment in many states because of how unreliable public transport is. But do you need the newest SUV? If you can get a smaller car with better fuel efficiency, it would be better in the long run.
It also helps to consider other running costs before choosing a car. Opt for one with more accessible parts so they can be easily repaired without breaking the bank. The maintenance cost should also be affordable. This way, the car will not be a liability.
Savings
While it is true that you cannot save your way out of a bad economy, there is no harm in saving, regardless. You should have an emergency fund where you keep money for a rainy day. Well, being able to see would mean cutting down on a lot of things.
Some include your rent and other living expenses. Some experts recommend renting in affordable areas and not spending up to half of your salary on rent alone.
Repaying debt
Accruing a huge debt means you’ll have to pay for it out of pocket for as long as it takes. This means you’ll be unable to save and be stuck in a bad situation. In some cases, you may be tempted to dip your hands into your retirement savings, but this is always a bad idea.
It only leaves you with more debt because you’ll still need to live after retirement. So what next?
