What you know about personal finance will allow you to be able to save money, pay your bills properly and even save for retirement. But a lot of schools do not teach students about personal finance, compound interest and debt.
It’s important to start educating yourself on personal finance so that you can lower your risk of debt, enter loans with greater confidence and save for your future.
Learning which personal finance mistakes to avoid can help lower your risk of financial hardship. These four personal finance mistakes are most common:
1. Credit Card Debt
When you want a new item, your first move may be to pull out your credit card and make a purchase. The issue is that your credit card lender wants to make money. These individuals want to earn a profit, and this is done through high interest rates and minimum payments that barely cover the interest accrued every month.
If you have $8,000 in debt and pay the minimum payment per month at a rate of 21%, you’ll be paying off your debt for over 23 years. You'll also pay over $10,000 in interest alone.
Use credit cards for emergency situations, but do not use your credit card for things you “want’ rather than need.
2. Buying a New Car You Cannot Afford
It’s estimated that 7 million Americans are 90 days delinquent on their auto loans. A lot of these individuals have purchased automobiles that are higher priced than they can afford. A new vehicle has its price diminish the moment it leaves the dealership.
If you purchase a vehicle that is slightly used, you’ll spend less money, enjoy lower payments and will often be able to enjoy a vehicle that is still under warranty.
Do your own research to determine how much you can afford to pay each month on your automobile because the lender is not going to think about your financial future.
3. Cosigning on a Loan
You may want to help a friend or family out when they need to take out a car loan, but you should not be cosigning a loan for someone else. When you cosign, you’re putting your own financial future at risk.
"Do not cosign a vehicle loan for your dearest friend or borrow money to purchase a car. Once you have cosigned, if the individual defaults on their loan you are liable,” says Scott Langdon of MoneyTask Force.
It’s better to loan or give someone money towards a vehicle rather than cosign a loan for them.
Personal finance also means staying within your financial means. Stay away from credit cards, choose a smaller, more affordable home and also opt for the vehicle you can afford. When you make a budget and start outlining every expense that you have, you’ll be much better off managing your finances.
It takes a lot of effort to budget, but it’s relatively easy to spend money.
When you’re able to “stay within your means,” you’ll have a much easier time saving money, withstanding unexpected financial burdens and putting money away for retirement.