Common Money Mistakes Part 2
With expenses in the US rising, there comes a time when we have to accept that some prices are not going to come back down and we have to reevaluate what is “needed” and what is possible. We cannot sit back and hope that the situation will work itself out with our next tax refund or our bonus. We have to take action and understand the pitfalls we keep falling into. Again, this is a huge subject, so it will be broken into several parts. Keep an eye out for our March Webinar where we will be diving deeper into this topic. The link will be shared in the March newsletter.
Mistakes we make
Not realizing that spending more than you make in a month actually makes the amount you have to spend each month less and less:
No one wonders if they run out of gas if their car will continue to go. It won’t. The same is true for our finances, but because there is money that can be borrowed (at a cost) we have the false sense that we are able to keep going on that same tank of gas, and that it won’t affect our next tank of gas.
To understand this analogy better, click here for a short webinar “Hope While in Debt”.
Not taking action as soon as you start missing payments:
When you miss a payment or make a late payment – that should serve as an early warning system. The sooner you take action (work another shift, sell something, reduce your spending, etc.) the easier it will be to get control of the situation. Sitting back and hoping it will work out, increases the effort that will be necessary to regain control later.
Not having an emergency fund:
The only thing you can expect in life is that life is full of unexpected events. Many surprise expenses should not be a surprise. Yes, the timing is a surprise, but we know, for example, that our old car will need repairs, we just don’t know when or how much it will be. Having extra expenses without any money in reserve, can lead to NSF fees and interest fees. Missing payments or paying late can lower your credit score, which can increase other expenses like rent and insurance. These extra expenses are often on top of your regular expenses and if there is not a plan to pay for them, they can trigger a downward financial spiral.
7 WAYS TO SAVE MONEY FOR AN EMERGENCY FUND – INVESTOPEDIA
Falling for money traps
Pay as you go:
This is debt and they are charging you interest, for example 1.67% per month is actually 20% per year, for the right to “pay as you go”. Do not be fooled into thinking that this is a benefit to you. It may be more beneficial than putting it on a credit card with a 29% interest rate, but this is still expensive. If you don’t have the money to purchase something right now, save and wait until you do have enough money to buy it outright.
Co-signing loans:
The reason a co-signer is required is because the borrower is likely to default on the loan. Which means as a co-signer, you have to pay the loan if they do not. Do this only if you have the money to cover the loan if they fail to pay it. Co-signing a loan should be done with extreme caution.
Not understanding that having a car repossessed or a house foreclosed does not necessarily mean that debt is paid off:
Many people assume that when their car or house is repossessed or foreclosed on that the loan is automatically paid off. This is not true. A recent example: John bought a car and the original loan was for $20,000. The car was repossessed and sold for $15,000. The car company then sued John for $25,000 and garnished his wages to get repayment! John now owes more than he did in the beginning and he does not even get to keep the car. Involuntary repossession and foreclosures cost the companies a lot of money – costs they are legally allowed to charge you for!
- If you are going to be late or miss a payment, reach out to the creditor right away to let them know and ask for hardship options.
- If repossession is necessary, ask if voluntary repossession is better.
- Be sure to understand your debt agreement before trying to sell a car.
WHAT TO DO IF YOU’RE LATE MAKING CAR PAYMENTS
We all wish that we had magic houses that would clean themselves and bills that would miraculously be paid off, but unfortunately that is not reality. Change is necessary and that starts with adjusting our mindsets and expectations and then we have to act and make a plan to thrive.