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Financial advice can be overwhelming simply because there are so many things you’re supposed to do.
It might be easier to focus on the biggest and most expensive mistakes to avoid instead.
The following financial missteps are common and costly hits to your net worth.
1. Not having an emergency fund
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Few of us truly have complete control over our financial situation. At any time, you could get robbed or severely sick. Somewhat more likely, you might have something break down, like an appliance or vehicle.
One way to offset these burdensome expenses is with an emergency fund. If you’ve set sufficient money aside, unexpected situations don’t become financial emergencies — which means you won’t need to do something costly like taking on debt or borrowing against your future by making early retirement withdrawals. (More on that soon.)
Here are “9 Tips for Starting an Emergency Fund Today.”
2. Keeping up with the Joneses
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As Money Talks News founder Stacy Johnson has said, “You can either look rich or be rich, but you probably won’t live long enough to accomplish both.”
Impressing people may actually be easier when you aren’t pouring time and money into following and acquiring the latest, greatest and shiniest things. That’s a never-ending game, and once you stop playing it, you may find yourself happier and with more money to spend on things you want instead of things you’re “supposed” to want.
3. Using debt/borrowing money to buy depreciating assets
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Example: a new car. This is a triple whammy. First, you’re taking on debt, which means you’re opening yourself up to interest charges. You’re likely to end up paying more than you borrowed.
Second, it also means you’re locking up some of your income to make payments until the debt is gone. You’re paying the opportunity cost of everything else you could have done with that cash. Meanwhile, the money itself is losing value to inflation over time instead of earning more (or at least keeping pace) in a savings account or investment.
Third, you’re taking on debt for something that, with time, won’t be worth what you paid. That applies to most things other than houses, but it’s particularly true for new cars.
4. Buying more house than you need or can afford
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While it’s true houses generally become more valuable over time, it’s not guaranteed. And even if a …….