Avoiding Common Money Mistakes (Continued)

Continuing from Part I. Read it here!

  • Be Proactive: A lot of bad spending and finance habits are reactive. That means many of us wait until something bad happens in order to fix it. Think about the dentists bill, or the car in the repair garage. The reactive spender stretches their credit limits to cover it; the proactive spender is already prepared. How so? A proactive financial mindset means preparing for the inevitable snags in life by continually setting aside for these emergencies. That way, there is always a cushion there for you to deal with surprises. Not to mention, it makes holiday and other gift shopping that much easier. If you’re not in a position to open a new account for the rainy day, that’s no excuse. If you get a regular paycheck, set aside just a bit, $20, 5%, whatever– because in this respect something is truly better than nothing. Also, set it up for automatic transfer, so you don’t even need to think about budgeting out your savings on payday. And as you get used to reduced take-home pay, maybe up the contribution to your future self.
  • Check yourself: Sometimes, we’re in the mindset that we’re destined for a certain career or position, and that other jobs are “beneath us”. But that idea couldn’t be more wrong. You must remember that in life, nothing is owed you– it’s up to you to go out there and get what you want. If you need to support yourself or a family, you should never skimp out on a job if you can land it. Pick it up, and look for what you want. Also, check your spending. Just because you feel you deserve a big purchase or investment doesn’t automatically mean you can make it.
  • Saying No: While it takes guts to say “no” to your friends when they want to have a ritzy night out on the town or dine at a pos restaurant, it takes way more to say “no” to family. If someone in the family is undertaking a very risky decision that you know may not end well, you are not obliged to go down with them. Rose recalls his mother asking him to consign a real-estate investment in Las Vegas. When Rose said “no” when keeping in mind his mother’s credit history, he must have felt really bad. But sure enough, late 2000’s real estate wasn’t great in most places in the country– Vegas included. Had Jeff agreed to his mother’s wishes, there would be two family members in the hole, and not just one.

Part of growing up means constantly educating ourselves and questions not only what we’ve learned, but the (sometimes) perceived infallibility of people who taught us, like teachers or parents. While they are important, some lessons aren’t always the right ones, and its up to each of us to continuously hunt for the truth.

Breaking Bad Tradition

On the road to financial freedom, we are most prone to emulating the lives and habits of those we learn from. And, more often than not, those models are our parents. Some of us had parents who exhibited awesome financial habits, and managed to learn from them. Others of us were not so fortunate, and may have developed poor financial habits and practices. But that doesn’t mean all is lost or that it’s too late to change direction. Over at the Art of Manliness, guest contributor Jeff Rose shares a couple tips that will help us to not make the same money mistakes as some of our parents. Keep in mind, that these tips are things you will have to work on with diligence; a lot of lessons we learn self consciously, and can be hard to shake. Check them out after the jump!

 

  • It’s all in the mindset: Thoughts such as debt being inescapable or financial hardship just being part of life are usually just poppycock. While certain hardships do come, folding to defeat or using them as an excuse for poor habits are no way to improve your condition. Maybe the reason you believe these things are because of what you have been taught as a child. But the first step to correcting this mentality is coming into a sense of self awareness. This idea of change starting with the mind is far from self evident, and by all means, you should share this with others less fortunate than you. Anyway, how do we break free from the prison of our minds; how should we frame these situations? Again, it starts with awareness. If ever you find yourself jealous of the material gains of those around you, do not automatically blame it on circumstances or the idea that they have more than you. Take a step back and look at your own financial habits. What are you doing differently? What are you not-so-great at or what could you be doing better? Consider that you don’t have all the answers, and look around you, ready to emulate better role models.
  • Mentorship: Next, you’re going to have to find a model to stick with. This may seem to be unnecessary at first, but you will soon enough realize that there are a ton of nuances to the finance game, and have questions upon questions. It would certainly help if someone could answer them! A good first step is joining a personal finance site (like this one!) that is teeming with tips for the person trying to gain control of their wealth. Rose suggests The Debt Movement and Enemy of Debt. Or, you could take the old fashioned route, and pick up a book by a reputable finance guru like David Ramsey or Napoleon Hill. Next up, you should definitely try to forge a more personal relationship. Unless you know a financial powerhouse firsthand, it can be a bit awkward to start a relationship like that. So what can you do? For starters, why not reach out to financial institutions and directly ask questions for experts in that field? Want to learn about loans? Talk to a loan officer. Interested in small business? Talk to the owner of your favorite shop!

 

 

How to Control Personal Debt

At some point in your life, you may find yourself in debt.  Whether it’s from credit cards or mortgage loans, there are always ways to improve your personal debt and get on track towards accomplishing your financial goals. To start, it’s vital to pay attention to your own spendings so you can avoid falling into financial debt.  But, if you do find yourself struggling with your finances, make sure you gain the knowledge you need in order to aid yourself to recovery.

CNN money urges you to be aware that some debt is good, as long as you can pay it back.  For instance, borrowing loans for college is a smart decision, because with the degree you earn, the higher your chances are of landing a job and having a better income.  Just always make sure you look for the best rates and be comfortable with knowing that you will have to pay back the loans – you don’t want to put them off for too long.

Many Americans are overwhelmed with credit-card debt, so make sure you aren’t using a credit card to pay for things that are rapidly consumed.  In 2012, according to CreditCards.com, the average American household has around $15, 950 in credit-card debt.  This is the fastest way to fall into debt.  It also means that you should refrain from using your card on things like meals and vacations, especially if you don’t think you will be able to pay off your monthly bill in up to two months.  Be smart about what you’re spending your money on.  Always ask yourself if you really need it.  Of course, we all have our own splurges from time to time, just make sure they’re worth it.

money, cards, bills

There are several means by which one can control debt.

A good way to know what you’re spending each month is to write it down.  Most people spend more money than they think they do without much thought about what they’re buying.  Start knowing your expenses, because once you are aware of your spendings you will cut back on unnecessary items.  This simple task of keeping a written record of your purchases will help you save money are quickly help to reduce your debt.

Another key to reducing your financial debt is paying off your highest-rate debts first.  Many people tend to avoid taking care of these debts because they get scared by the high numbers.  In reality, paying off the balances of loans and credit cards that charge the most amount of interest will help immensely reduce your debt.  Take it one step at a time, you don’t have to pay off each of your highest-rate debts at once, but you’ll feel much better about your financial situation once you start to pay off those big debts.

Remember, knowledge is power – so know knowing how much you spend each month and what steps you need to take in order to improve your personal debt is key for financial success.