Six Financial Mistakes To Be Avoided

Post by Sharat on February 1, 2010 · Under Hints and Tips, Personal Finance, Self Help, Wealth Management, banking, credit cards, home loans, insurance, investments, mortgages, personal loans · Comment

If you are making one of these six financial mistakes, you probably aren’t aware, but doing so puts your financial security in jeopardy.

1. Paying off your mortgage with your credit card

Paying off your mortgage with a credit card is something that should be avoided at all costs. In the immediate term, you may not be paying more interest, but in the long term your interest payments will balloon, and do so very quickly.

This is because most mortgages cost between 3 to 6 percent in annual interest whilst credit cards charge anywhere between 15 per cent and some even charge more the 30 per cent.

Instead of using your credit card to pay the mortgage you would be better off asking your lender for a payment holiday, and allow the interest accrued to build up. This is far cheaper than other forms of borrowing.

Those people who resort to using a credit card to pay off their monthly mortgage are clearly indicating they are in financial trouble, and goes to show they are having difficulty because they are unable to pay off their most important monthly bill.

Not getting that particular house in order will ensure the individual’s debt problem with spiral out of control.

2. You end every month in the red

The most obvious sign of financial ill health is if you find yourself being overdrawn by the time pay day arrives.

If this is happening to you, then it is a clear signal that you are spending too much.

Overdrafts, especially of the type that have not been approved by your lender is one mof the most expensive ways one can borrow money.

The quickest solution is drawing up a budget and eliminate unnecessary expenditure. Ideally, you should also seek to find a way to generate more income.

3. You don’t know how much you owe

It is extremely dangerous to not know how much debt you are in, particularly if that debt is carried on credit cards.

Card issuers allow their borrowers to pay off a fraction of their loan, and this is particularly worrying because by simply making the minimum monthly payment the borrower allows high levels of interest to build on the amount left unpaid.

Also credit card companies are more often now cutting the credit limit of their borrowers, or they could require you to pay a higher minimum every month which could end up being problematic.

If you are in this position, gather up all your credit card statements, and calculate your total debt, and start working out how to get yourself back into the black.

4. You don’t have a rainy-day fund

Being able to comfortably live of your income without having to get into debt is an excellent start, but one should always endeavour to have some spare cash just in case.

Ideally most experts recommend that we should have 3 months equivalent of rainy day fund tucked away, which will help should you ever be made redundant.

Make sure the money is in an instant-access account, earning a decent rate in interest – the best pay over 3%.

If you want to establish a rainy day fund, they putting aside a quarter of your money every month for a year will go a long way towards to goal of having three months income as cash by the end of year.

5. Your income is not protected

Thinking about the bad things that could possible happen, such as job loss or sickness is unpleasant, and it is no wonder there very few of us actually do it.

If you have a family who depends on your earnings, then you have an obligation to ensure that your income does not suddenly dry up, if the worst should happen.

Insurance is one way of protecting your income. Income protection policies give you the ability to choose how much income you will receive and for how long if you find yourself in a position where you cannot work. The higher and longer the protection the more it costs to insure.

6. You don’t have a pension

The most important financial advice out there is the earlier you start planning for retirement, the more you will have at retirement, and you should start saving for this period of lie as early as possible.

Even if you can’t make large payments into a pension fund, whatever money you do manage to put into a fund will have longer to grow the earlier you start.

Relying on any property you own to fund your retirement, is not completely guaranteed either, if the property market is down when you need the cash, you will end up in a worse position when you need the money than expected.

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