It is always a good idea to be aware of what could cause a knockout punch to your finances and drain savings accounts. You never know when an unexpected blow to your pocketbook is coming from have should have solid defenses in place.
Here are six common problems that can be a serious blow to your finances and money management tips to overcome common money mistakes.
1. Credit card dependency
Americans owed a total of more than $1 trillion on their credit cards in 2018, according to the Federal Reserve Bank. 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. Budgeting tip: avoid adding to credit card debt until you pay off old balances.
2. Student loan debt
Going back to school simply because it is easier than conducting a job search can put your finances up against the ropes before your career even starts. Personal finance advice: Be clear on the total cost of attendance at the school you plan to attend and prepare in advance to minimize student loans.
3. Overpriced investments: financial mistake
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. Financial tip: Balance your investments in terms of risk and potential return, and consider getting advice from a professional before making significant gambles.
4. Big mortgage
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 may not go the distance. Budgeting tip: Use restraint when buying a house and be sure your mortgage is one you can comfortably afford.
5. Career complacency
People sometimes get to a comfortable income level, and ease back a bit. The problem begins if you don't keep your skills up to date or put forward a consistently competitive effort. Personal finance advice: 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
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. Money management tip: Steadily build a savings account that can be readily available in an emergency and shop for rates to maximize earnings on your account.
Following budgeting tips requires discipline but your finances can be successful if you learn to keep your defenses up.
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