4 Financial Pitfalls That Drive You Deeper Into Debt
Does it ever seem like the more you try to save some money, the farther you fall behind? If so, you are joining millions of other Americans that find themselves living from paycheck to paycheck or using their credit card to bridge the gap between what they make and what they feel they need to spend. The bad news is that the situation will never change unless some steps are taken to solve the problem and even then, a single financial emergency can have you right back to where you started from. By learning to recognize these 5 financial pitfalls, you will have a better chance of avoiding the traps that keep a person in debt and can put yourself on the path to financial freedom.
Paying Too Much For Your Largest Expenses
One of the biggest pitfalls that keep people in debt for long periods of time is paying too much for their largest expenses, such as their home and their car. The cost of your mortgage payment or your rent payment should never exceed 30% of your total monthly income and the monthly payment for your car should never exceed 10%. If you are paying more than that, you are drastically reducing the amount of money that you have for other purchases and will have a very hard time finding any additional money in your budget to save for a rainy day.
Not Tracking Your Expenses
People that do not keep track of the money that they are spending on different items throughout the month will often find themselves wondering at the end of the month where all of their money has gone. If you do not keep a record of what you are spending your money on each month, you will have no idea what areas of your spending could be trimmed to save you more money. If you are trying to get out of debt, every penny that comes out of your pocket should be tracked so that you can identify where you money is going each month and how to reduce your spending.
Not Calculating The Total Cost Of A Purchase
Many people will only look at the upfront cost of the items that they are purchasing instead of looking at the total price that will be paid. A good example of this is people that purchase items from a rent to own location. The items at these locations can typically be purchased for a low monthly rate, but over the length of the contract the person will end up paying double or more than what they would have paid if they have saved up their money to purchase the items from a regular retail store.
Not Having Any Money In Reserve
Not having a small cushion of money tucked away makes any financial issue take on the form of a crisis. If you do not have the money in reserve to pay for a repair for your car or to fix the furnace in your home, you will often have to take on more debt in order to solve the problem. Over time, the amount of interest incurred on the debt will significantly increase the amount of money that you will be paying to solve the problem.
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