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The Ultimate Guide to Steer Clear of Financial Blunders
Financial mistakes are a universal experience. From neglecting to settle a bill, to overdrawing a credit card, we’ve all committed a financial blunder at some point. However, excessive missteps can have severe financial implications. This comprehensive guide will help you identify and avoid six common financial pitfalls.
1. Ignoring the Crucial Role of Budgeting
“Failing to plan is planning to fail.”
This old saying couldn’t be more accurate when referencing budgeting. A budget serves as a roadmap for your weekly, monthly, or yearly spending, and it’s an indispensable tool for tracking and managing your money. If your financial goals involve saving money or exterminating debt, a budget is your lifeline. Not budgeting can often lead to unnecessary expenditure.
The Reality-Based Budget
It’s crucial to base your budget on real figures. To do this, you need to monitor your spending habits and average income. This exercise should give you a clear understanding of your financial landscape after about three months.
The Importance of Family Goals
Setting family goals is the next phase of budgeting. This process will help you identify essential and non-essential spending.
Developing a Budget
Once you’ve completed the above steps, you can create a budget that aligns with your family’s priorities.
2. Settling for Minimum Payments
If your credit card balance doesn’t seem to decrease despite making regular payments, it’s likely because you’re only making the minimum payments. Designed to prolong your debt, most of the minimum payment goes towards interest, leaving a small fraction for the principal. This system means you could end up paying double for the same item due to accrued interest.
3. Overusing Credit Cards
Reaching your credit limit on multiple cards can spell disaster for your finances. Your credit utilization, or the amount of available credit you have, contributes to a third of your overall credit score. Maxing out your credit not only diminishes your score but also signals to lenders that you may have a spending problem, which can be detrimental.
The High Cost of Credit
Credit cards often come with hefty interest rates. It’s far more economical to opt for a line of credit or a loan from a bank or credit union. If you possess multiple credit cards, consider keeping only a couple with the lowest interest rates, and consolidate the rest into a low-interest loan.
4. Neglecting a Savings Account
An unexpected $1,500 car repair can be a nightmare if you don’t have a savings account or emergency fund. Setting aside a month or two worth of expenses can safeguard you from plunging into debt during a financial emergency.
The Power of Consistency
Consistency is key when it comes to saving. Regularly transferring a set amount into a savings account can quickly accumulate into a substantial emergency fund.
5. Overlooking Your Credit Report
Approximately one-third of Canadians have discovered errors on their credit reports. These mistakes can significantly lower your credit score and result in higher interest rates or even credit denial. Regularly reviewing your report can help you identify and rectify these errors promptly.
6. Delaying Financial Assistance
Seeking professional help at the first sign of financial trouble can save you from dire consequences. A consultation with a Licensed Insolvency Trustee can provide you with a range of solutions, from learning money management through credit counselling to filing a Consumer Proposal or Bankruptcy.
Conclusion
While it’s ideal to avoid financial mistakes, they are often inevitable. However, consulting with a Licensed Insolvency Trustee can help you regain control of your finances and recover from unexpected financial hurdles.
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