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Avoid the worst money mistakes to achieve financial success

Almost every person will make poor financial decisions during their lifetime. The key to success though is avoiding the money mistakes that are difficult to overcome.  Andy Mattingly from FORUM Credit Union is here to highlight the poor decisions that can lead to financial disaster.
What is the biggest mistake that people make?
 Probably the worst financial decision that a person can make is to open and use too many credit cards. This almost always spirals into uncontrollable credit card debt that can take years to pay off. Choose one primary credit card and avoid opening other cards especially store credit cards.
Why is this decision so impactful on a person’s long term financial success?
Because this bad decision often leads to the next bad decision which is making late payments and letting other bills get severely past due.  These actions almost always create a poor credit score.  A low credit score can cause a person to pay high interest rates or even be denied credit or other services. That’s the problem with making one major bad financial decision, if can often lead to another critical decision that can be even worse financially.
Are there any other issues with having such a huge debt burden?
Yes and this one can often mean financial ruin.  People who have a high debt burden often can’t or don’t create an emergency savings fund. When an emergency financial need does occur, it often creates a dire financial situation that requires drastic measures to overcome.  Additionally, people with high credit card debt are not making the most of retirement savings opportunities, losing precious time to save for retirement.
What could be a poor decision when it comes to buying a home?
It always comes down to buying more house than a person can really afford and because they are house poor, other financial decisions are impacted.  Retirement, emergency and college savings are often reduced or delayed and when these events occur there is no money saved to pay for these events.  Keeping housing costs around 25% of monthly income is highly recommended.
One is the most important piece of advice for those starting out in the workforce
Develop a spending plan before finding a place to live, buying a car or taking out any debt. The spending plan should include student loan payments, emergency fund savings amount and a retirement savings amount.  Taking this approach will help you really know what you can spend on housing and transportation without sacrificing other important financial activities.
Is there anything else related to retirement savings that can be a bad decision?
Yes there are two.  First, borrowing from a 401k or taking out retirement savings for current expenditures.  Besides the tax consequences, there is just no way to overcome the lost time for saving for retirement.  The second is not increasing your retirement savings amount to reach 10% as quickly as possible. And if you are not at least at the company match, you are definitely making a poor financial decision that is extremely difficult to overcome.

Posted: 10/1/2015 with 0 comments

Categories: Money Matters, Planning, Retirement

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