Aah! January! The time for New Year's resolutions. Most of our resolutions revolve around all the wonderful things that we want to do with our lives. However, we must not overlook some basic mistakes that can doom our plans from the start. Here are 7 common financial mistakes to avoid for 2011:
Living Above Your Means
If you want to have a fiscally irresponsible 2011, this is the easiest way to get there! No matter what your income level or status in life, if you spend more than you earn, you are asking for financial trouble. If you desire to live a lifestyle that your current income can’t support, then you need to dramatically reduce your expenses in other areas, find a new source of income, or exercise patience and discipline!
Not Having an Emergency Fund
Establishing an emergency fund is probably the most often talked about subject in personal finance outside of credit card debt! However, many people neglect this important financial necessity.
Not Developing a Financial Plan
Whether you are deep in debt, or have thousands to spare, you need a financial plan. If you are trying to dig yourself out of debt, then you have to decide how to pay back your loans. That means evaluating the cost of borrowing and tackling your most expensive burden.
If you are trying to save up for a future purchase – car, house, college, – then you must plan how to allocate your money towards each goal. Do you save for each simultaneously, or do you complete one goal before moving to the next? Also, you must decide on the best place to stash your cash until it’s time to make your purchase.
No matter what stage you are in, failing to have a concrete, measurable financial plan can lead to disaster!
Buying a Brand New Car
Buying a new car can be a mistake for several reasons. First of all, most people who buy a new car have to borrow money to do so. That means that you are essentially living above your means, and throwing yourself into debt!
Second, this also means that you will be forced to pay for full-coverage on your auto insurance – rather than reducing your coverage and padding your emergency fund to cover basic damages.
Also, by purchasing a brand new car, you insure that you are purchasing a rapidly depreciating asset! If you borrowed money to get your new car, then you are now paying interest on this depreciating asset, and are now upside down in your car loan.
Failing to Save for Retirement
Because our society is extremely focused on the present, retirement planning seems to be at the back of everyone’s mind. However, every year that you put off saving for retirement, you lessen the effect of compound interest!
If you are not able to put aside a substantial amount of money toward retirement right now, just start with something small. The largest variable that we have control over as far as investments go is time. Don’t waste it!
Failing to Periodically Evaluate Recurring Expenses
There are many expenses that we just pay for month after month, or even less often than that. Many times these recurring payments are just deducted out of our bank account or automatically charged to our credit card. We pay them without a thought and then go about our normal day-to-day business. However, we could be wasting a considerable amount of money if we fail to periodically evaluate these expenses to ensure that they are still providing us with a benefit that is worth the cost.
For instance, you may be paying for a CAA membership even though you recently bought a car that includes roadside assistance. What about that data plan on your cellphone that you don’t really use, or the subscription to satellite radio that isn’t as great as you thought it would be?
Taking on Credit Card Debt
One sure way to get your 2011 off to a horrible start is to rack up credit card debt! Because of a failure to set, and adhere to a Holiday budget, many of us will begin 2011 with credit card debt! There are a number of things that you can do to reduce credit card debt, but the most effective strategy is to avoid it altogether.
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