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6 mistakes that can knock out your finances

September 14, 2016

By Richard Barrington | MoneyRates.com Senior Financial Analyst, CFA

Personal finance mistakes to ruin savings accounts

During the historic Floyd Mayweather-Manny Pacquiao fight there was no knockout, but your finances may not be able to take a punch quite as well. It is always a good idea to be aware of what could knock out your finances and drain savings accounts because boxers who know where the punch is coming from have better chances of keeping their defenses up.

Here are six common problems that can deal a knockout punch to your finances:

1. Credit card dependency

Americans owed a total of $729 billion on their credit cards in the second quarter of 2016, according to the Federal Reserve Bank of New York's Quarterly Report on Household Debt and Credit. This also means billions in annual interest sucked out of the bank accounts of credit card customers, all because they got in the habit of charging more than they could readily pay off. Mounting debt burdens and interest charges have knocked out many a household's finances.

2. Student loan debt

A by-product of the weak job market resulting from the Great Recession was a doubling in student loan debt outstanding over the past seven years. Going back to school simply because it is easier than facing a tough job market can put your finances up against the ropes before your career even starts.

3. Overpriced investments

The past 15 years have seen extreme peaks and valleys in tech stocks, real estate, oil and gold, among other investments. Trying to chase these trends can lead you into overpriced assets just when they are poised to collapse - the investment equivalent of walking into a punch.

4. Big mortgages

People like to think big when they buy a house, leading them to sign on to mortgage payments that are a stretch to afford. This is like getting into a fight and expecting not to be hit. If your finances cannot take a little adversity, they'll never go the distance.

5. Career complacency

It happens time and time again in boxing - a fighter gets to the top and loses the edge it took to get there. For more mainstream careers, the equivalent is taking your job and your career for granted. People get to a comfortable income level, and they ease back a bit. The problem begins if you don't keep your skills up to date or put forward a consistently competitive effort. Keep your eye on how well your company is holding up in its markets. Or you might find that your comfortable job gets taken by a hungrier and more aggressive competitor, either from inside or outside your own organization.

6. No financial cushion

It isn't just laziness that dooms some fighters. Others are done in by too much fast living once they become rich and famous. Financially, you don't need to have a drug or alcohol problem to be living on the edge. Any lifestyle that is debt-dependent, makes no room for savings or is just one setback away from defaulting on payments is too close to the edge to be safe.

Notably, Floyd Mayweather has made a huge fortune by being a primarily defensive boxer. You will probably never make Mayweather money, but your finances can be successful if you learn to keep your defenses up.

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