People make mistakes all of the time when dealing with personal finances basics. Some of the most wealthy people on the planet make mistakes, people in the middle class make mistakes and the poor make money mistakes. It is an almost unavoidable issue. The more poor you are, the more damaging those mistakes are. What are the biggest money mistakes people make? Let’s find out.
1. Neglecting Your Credit Scores
Credit scores or ratings are more important today than they have ever been, especially today with all kinds of people defaulting on loans and mortgages. Banks that lend money are incredibly cautious about to whom they will lend money. Lenders often look for low-risk customers. If your credit rating is at 750 or above, lenders will fall all over themselves to get your business. A good credit rating also means you will get great rates on home mortgages, vehicle loans, personal loans and credit cards. Insurance company’s and possible landlords also use credit ratings to decide on quality customers or tenants, for this reason it is crucial to keep your credit in good shape.
Do you know your credit? There are all kinds of resources that can give you an idea of where you stand. They will help with your personal finances basics.
2. Carrying Credit Card Debt
If you carry a balance on your credit card not only are you paying ridiculous interest rates, but you may also be affecting your opportunity to get a mortgage or some other kind of loan, plus you are damaging your credit score. If you want to fix your personal finances you need to eliminate any or all credit card debt. If you need help in eliminating your credit card debt, get it. Leverage is important for, you if you want to get a loan and you need to have good credit. The sooner you eliminate your credit cards the better you will be.
3. Too Much Home or Auto Debt
In an ideal world you should never exceed 30% of your gross income when it comes to your mortgage. On that same line of thinking, your transportation expenses should not be greater than ten percent of your income (that includes insurance, gas and repairs). If you are paying more in one or both of those categories, you are likely paying too much when it comes to home or auto debt.
What should you do? It may be time to rethink your living arrangements. If you can’t afford a house with a thirty year fixed rate mortgage, you simply cannot afford the house. If you can’t afford a sixty month loan for a vehicle, you should not be driving that car. Those are easy personal finance basics you must know.
4. You Tapped Into Your Emergency Fund or You Don’t Have an Emergency Fund.
The importance of having cash in hand has become more and more valuable with each passing day. You should have an emergency fund. It can assist with paying for unexpected costs, such as car maintenance, and it will even cover your bills if you suddenly become unemployed. Most people try to create an amount that is equal to three months living expenses. For families that fund should cover 6 months. Clearly the more you can afford, the better. If you haven’t yet created an emergency fund, you should start making one. Start by setting a goal of creating an amount of $1,000 and then go from there.
You don’t have to make mistakes, but everyone does. The less often you make those mistakes the better off you will be. If you stop making these 4 crucial errors, you will start to enjoy the financial freedom you deserve. Trying to live within your means, staying up with your debts and your credit are the personal finance basics we should all take care of. Start by setting goals, and tackle one of these things each month, you will be rewarded financially in very little time at all.