Low-income levels do not create most financial difficulties. Financial challenges typically arise from many of the same causing errors causing you many difficulties in every aspect of your life–money included–problems that are largely fixable and form part of daily living. You may feel as though you will never get ahead; however, if the answer to your question is “Maybe” or “I don’t know,” you may be stuck because of a few personal habits that continue to drain you of your growth each month.
Without goals to work towards, you will never have an accurate picture of your financial future. If you do not have a clear picture of where you are headed financially, every candle will appear as if it was lit randomly. Write down what your financial picture will be by this time next year, next 5 years and next ten years; otherwise you are going to drift through the years with no sense of urgency, no recap on your previous spending habits, and no specific course of action. Most people either wait for someone else (god, government, spouse, friend) to save them or rely on an external force (money, crime, pay raise, loan forgiveness) to bail them out.
Housing accounts for more than 50% of people’s out-of-pocket expenses. If your housing cost is not in line with your income, the rest of your expenses are too high. If half of your income instantaneously pays for your housing, you will only have enough left over to pay for groceries, gas, car insurance, and debt payments. If you are lucky, you may have enough remaining from these expenses to be able to contribute to your future retirement account by means of employer matching contributions (401K).
Always aim for 25 to 30% of your take-home pay to be spent on housing, so if you are further than that, you should look for a way to either increase your income or lower your payments. Although it isn’t very exciting, it is invaluable.
If you have ever said at the end of the month, “Where did all my money go?” it is because you have allowed your expenses to happen without a plan. You should create a budget so that you can always see how much you spend and based on your plan, how much you have left to spend.
Developing a monthly budget or plan is not a way to restrict you from spending, but rather to control your spending, so that you are in control of your money. When you plan your expenses before they happen, you can spend your money without guilt, because you have chosen to do so.
The reason you only make minimum payments on your debt is because it is more comfortable to do so, but it means that your lender gets richer. Your debt doesn’t go away just because you made the minimum payment. The longer the debt stays around, the more you are paying in interest.
The wealthy aren’t building wealth by keeping their debt for many years; they pay it off quickly and aggressively, so even a little bit more than the minimum payment would be much better for your long-term wealth. Essentially, interest works for you when you invest, and works against you when you have debt.
Too Much Money on Hand
Everyone needs an emergency fund, but once you have three to six months’ worth of essential expenses saved, any additional cash that you have in a basic savings account is going to be losing value because of inflation.
If your money is not earning much of anything, it’s definitely going to be losing value over time. You should be making your money work for you by investing it and allowing it to grow. Letting your extra cash sit around for years is an opportunity lost.
Shopping for Auto Insurance
When is the last time you shopped around for auto insurance? If you haven’t done so in 2 years or if you have moved, wed, or aged into a lower-risk group, you may be paying too much for your auto insurance. It only takes about 15 minutes to get quotes on the internet. You may save hundreds of dollars a year.
No Strategy Grocery Shopping
If you’re trying to eliminate debt, but you insist on spending premium prices for groceries because they’re “convenient” or “in style,” you are not shopping wisely. Changing your grocery shopping habits can have a significant impact on your ability to pay off debt. It is often as easy as changing stores or using more “store-brand” items. Convenience costs money. Sometimes the extra miles you drive can save a lot of money.
The Financial Principles for Building Your Wealth #8—Without an Emergency Fund
If you have to make a car repair or pay an unexpected medical bill, do you have enough saved to cover the cost? If you do not have an emergency savings account set up and you have to use credit cards or take out loans, your financial problems can extend beyond the immediate crisis and become a long-term financial burden.
An emergency savings fund should have enough money saved to cover three to six months’ worth of basic living expenses.
The Financial Principles for Building Your Wealth #9—Subscription Overload
Every time you sign up for a subscription, it feels like you are only spending a little bit of money. The average monthly cost of many subscriptions is less than $50. However, once you put several subscriptions together, your total monthly cost can be several hundred dollars.
Every six months, evaluate all of your current subscriptions. If you do not currently use it or if you would not consider signing up for it today, you should cancel that subscription. Recurring charges add up quickly.
A brand-new car depreciates in value immediately after you drive it off the lot. Hence, if you were to finance or lease a vehicle, your total financial loss would consist of the total depreciation of the car ($3,000+) plus paying interest on the loan/lease or buying the car at full price.
A lot of successful individuals in business or investments have a few year old vehicle purchased with cash that was previously owned. It allows the financial wealthy individual to gain by not having to deal with the loss associated with the depreciation.
Owning a vehicle or dealing with how much you are behind and need to pay off is very important when determining how much money you will have left after your vehicle is paid off.
Leasing a vehicle should allow you to understand the true overall cost of the lease before making any decision. After all a vehicle needs to allow you to get from one place to another, not keep you in payments for many years.
All of the things above do not appear to be significant problems, but when added together they quietly create a roadblock to your progress.
The financially successful do not earn their income, they avoid the traps that prevent forward motion. Take a minute to evaluate yourself honestly and see which one of these apply to you?
