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The mistake is human, especially on the financial front. We all make mistakes related to the money we regret later, but some mistakes have more lasting effects than others. Here are three mistakes that could seriously affect your finances for life, so consider yourself warned.
1. Accumulate credit card debt
Credit card debt is bad news for a number of reasons, the most damaging being the cruel cycle of accumulated interest that you may have trouble freeing yourself once you are there. For each day you carry a credit card balance, you will earn interest on your unpaid bill, so you'll be adding to that total constantly. Wear it long enough and you may never catch up.
Even if you make manages to get out of this hole, if you have a credit card balance over a long period, your initial debt will cost you well more than its original amount. Imagine that you accumulate a $ 5,000 balance on a 24% interest-bearing credit card that you will keep for five years. After all, you will end up paying a total of $ 8,630 for everything you originally bought. That's more than $ 3,600 worth of wasted money.
SOURCE OF IMAGE: GETTY IMAGES.
Another problem with credit card debt? This can lower your credit score, making it more difficult to obtain a mortgage, a car loan or even a job.
Rather than run this risk, pledge never to charge more on your credit card than you can afford to pay at the end of the month. At the same time, save at least three months of living expenses in case of emergency so that, if an unplanned bill strikes you out of nowhere, you will not have to have a balance credit card to cover it.
2. Over-collection for college
Many people have no choice but to take out loans to pay for their studies. But there comes a time when too much student debt can haunt you until your 40s or 50s, or even beyond.
On the one hand, the more you accumulate student debt, the more time you will need to repay them. Along the way, you may forget or be forced to postpone a number of key financial goals, whether it's buying a house or saving for retirement. In fact, home ownership among Americans in their twenties and thirties is at its lowest level in 30 years, and we can thank the excessive student loan balances for this statistic.
Rather than accumulating a debt fortune to obtain a degree, be sure to keep your university costs to a minimum, so that your borrowings are minimal. By opting for a public four-year college in the state, for example, for a private college, you could easily save $ 100,000 on your total higher education bill, thus allowing you to get a diploma at a price well below that of your peers.
3. Tap your early retirement plan
When you need money to the limit and you do not have it in savings, your natural inclination might be to make a quick withdrawal from your IRA or your 401 (k). After all, this money belongs to you, so why not use it?
The problem, however, is that, most of the time, withdrawing funds from a traditional IRA or 401 (k) before the age of 59 and a half means losing 10% of your withdrawal as a penalty from the start. It is money you will never recover. In addition, when you withdraw a lump sum from your pension plan, you have a lot less for your golden years. You are also losing growth on this amount, which could prove to be even more detrimental.
Imagine taking a $ 10,000 withdrawal from your IRA at age 30 to cover a home repair. If your investments normally generate an average annual return of 7% and you retire at age 67, you will lose $ 122,000 in those 37 years if you take into account the growth of that $ 10,000. And that could be the difference between having enough income in retirement or not taking advantage of it.
A better bet? Explore different financing options. Although a personal loan is not the ideal solution, this may seem more logical than a withdrawal from an early retirement plan, especially if you are entitled to a favorable interest rate. . A home equity loan could also be a reasonable solution if you own and qualify. Whatever the case may be, think twice about withdrawing from the early retirement plan because you may lose in a number of ways.
Some financial mistakes are easy to fix. Of the others, not so much. Avoid these three as the plague, and you will have less to regret in the end.
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