General

7 Common Finance Mistakes to Avoid Altogether

There are quite a few different mistakes that you should avoid making when it comes to your finances, and it’s important that you know what some of them are. The more mistakes you are able to avoid, the better your chances are going to be at saving up money and retaining your financial freedom.

1. Frivolous Spending

One of the biggest mistakes that you can make when it comes to your finances is to spend your money frivolously. There is nothing wrong with the occasional frivolous purchase, but you certainly don’t want to make a habit of it. It is very important that you do not spend your money on too many unnecessary things, because otherwise you might just find yourself in the poor house. A lot of people who went broke never thought it could happen to them despite their excessive spending.

2. Payments that Never Seem to End

You will definitely want to make a point of avoiding purchasing items that you have to keep making payments on. A lot of people order certain things on TV, and as a result they get caught up in a never ending cycle of making payments. It is important that you keep these purchases to a minimum, because otherwise you are going to get stuck in a cycle that could do a lot of damages to your finances over time.

3. Living on Borrowed Money

Another huge mistake that you will need to avoid when it comes to your personal finances is living on borrowed money. The last thing you want is to keep borrowing money from people to get buy, because it makes paying it all back virtually impossible. If you want to be financially independent, it is crucial that you take some time to save. You also don’t want to make a point of using your credit card all the time, because that can get you into a lot of trouble for obvious reasons.

4. Buying a New Car

While it may be tempting to buy a new car, it’s important that you think twice about doing this. If you are going to buy a new car, make absolutely sure that you have the money to cover such a major purchase. The last thing you want to do is buy a new car that you cannot really afford. If you are planning on financing the new car that you want, make sure that you can afford your monthly loan payments.

5. Spending Too Much on Your Mortgage

Take a close look at your mortgage and determine for yourself whether or not you are simply spending too much money on it. If you are living in a huge house by yourself or with just one other person, it might be a good idea to consider moving to a smaller place that you won’t have to pay quite so much for each month. A big mortgage can make a huge dent in your budget, so you will need to keep that in mind. Moving to a less expensive house could do a lot for your personal finances.

6. Living Paycheck to Paycheck

You definitely don’t want to end up living paycheck to paycheck with no savings. It is imperative that you start putting away money from each of your paychecks so that you can start building a nest egg of sorts. Since you obviously want to have money set aside for retirement, it is important that you start to save as early as possible. In the end you will be very glad that you chose to do this.

7. Abusing your Home Equity

A lot of people take advantage of their home equity a little bit too much, and they always end up regretting it. It is important that you do not view the equity you hold in your home as a piggy bank, because that mentality can really get you into big trouble down the road. Refinancing and taking money out on your home equity essentially means transferring ownership to somebody else. It can also cost you thousands of dollars in interest and various fees. Make sure that you think twice about doing this.

Loans

How to Avoid Getting a Loan

Borrowing money can be expensive and sometimes stressful. This means that there are many people that would like to avoid doing it. However, sometimes it may seem that you have no choice but borrow money. However, there may be some things that you can do in order to avoid paying the loan.

If you are careful with your money and only buy essentials and a limited amount of luxuries, there is a chance that you will be able to save some money each month. This is easier for some people than others depending on salary, how many earners there are in a household, how high the household expenses are and things like that. However, many people spend more than they need to and it could be possible to cut back and have some money left to save. There may even be some ways to cut back without reducing what you have such as changing to a cheaper utility company, finding cheaper insurance, shopping in a cheaper supermarket or buying cheaper brands. You may also be able to cut back on some of the less necessary items so that you can save. Once you have some savings built up you will be able to use them if you need something a bit extra rather than having to borrow money. So if you have an unexpected bill, need to replace a white good or happen to be short of money, you will have some to fall back on and help you out.

Of course, if you have not got any savings and you need some extra money, then there will be none there to use. This can be a much more difficult situation. If it is a bill that you need to pay, then it can be worth talking to the company and asking whether you can have a bit longer to pay. They may be happy to let you delay the payment or perhaps pay a bit less until you have the money available to pay everything that is owed. If you want to buy something, then it may be that you can go without it or wait until you have saved up for it. This will obviously depend on exactly what it is that you want the money for.

A credit card could be a useful thing in this situation. You could pay for the item on the credit card and then you will not have to pay for it until the bill comes along. If you are sure that you will have enough money to repay the credit card when the bill comes through then this could help. You will have an interest free loan and therefore not have to pay anything extra for the item. An interest free credit card could be an alternative solution where you will have longer to pay back the money that you have borrowed. You will need to be careful as when the interest free period ends, the interest rate could be very high; therefore making the loan expensive. But if you pay it back before this then you will get it for free.
Borrowing from friends and family could be an option for some people. Asking then to help you out for a short amount of time may be something that you are comfortable with doing and they may let you pay it back without any charge. This can be difficult if you get into the position where you cannot afford the repayment, but it will depend on who has lent the money and how much they need it.

It is also worth considering that not all loans are bad. If the money that you are borrowing is to pay for something that will help you financially in the long run, then it may be a really good idea. For example, you may want to borrow money to buy a home or to study so that you can earn more money. You may also find that you could advantage from borrowing money to buy a car so that you can travel to work. So even if you do not like the idea of borrowing any money, you may find that it will be the best way to improve your future finances.

Mortgages

Is a Fixed Rate Mortgage a Sensible Idea?

There are lots of options for mortgages but many people choose a fixed rate because they think that they are the best. They are advantages and disadvantages of doing this and it is worth thinking hard about them all before you make up your mind which type of mortgage is right for you.

A fixed rate mortgage will have a certain amount of time being fixed at a specific interest rate. This will not be for the full term of the mortgage, but perhaps for between one and five years. It means that during this time period you will always have to pay the same amount of interest and therefore will be able to predict exactly what that payment will be. With a variable rate it will change when the base rate changes and possibly at other times as well. This means that you may find it being rather unpredictable and when payments go down, this is great but if they go up, you may find it hard to manage. When you first take out a mortgage you tend to borrow as much as you can afford and therefore you may be less likely to be able to afford any increases due to a rise in rates. Therefore having a fixed term at the beginning can be really useful and enable you to budget more easily and make sure that you manage your money well. You are likely to have some pay rises during the term of the mortgage and this will mean that once the fixed interest period ends, if the rate you have to pay goes up, you will be more likely to be able to afford it. This may not always be the case as well as there is the possibility that you may have less pay or that your expenses may have gone up, perhaps just to increasing prices or due to starting a family or other circumstances. It is worth noting that it is possible to swap mortgages and you may be able to change to another fixed rate mortgage should you want to. You may need to change lenders though and there could be an early redemption fee to pay, if you change lenders or if you change accounts within that particular lender.

Having a fixed rate can protect you against rate rises but if the rate falls then you could end up paying more than those on a variable rate. This could feel rather annoying and as you are normally tied into a fixed rate it will not be possible for you to change to a different account or there will be a very high penalty if you do. A fixed rate if often set above the variable rate so that if the rate does go up, the lender will not miss out on profits. This means that you could potentially end up paying more than you would compared to if you were on the variable rate. It is very hard to calculate which will be better though as even in the short term it is difficult to predict what the interest rates will be doing. If the rates are low, then you may think the only way for them is to rise and if they are high you may feel they are likely to fall. However, even looking back at past patterns, it is not easy to predict whether that will be the case. It is possible they may just remain the same for a long time or they may just change a little but there could be drastic increases or decreases as well. The longer the term, the harder it is to predict what might happen with the rate.

Whether you save money with a fixed rate is really down to luck. The odds are against you because a lender will set the rate based on their prediction of what will happen to the rates in the future and maximise their chances of making more profit. However, it may be in your advantage to know exactly what you will be paying each month and therefore be the right option for you. You may be prepared to take the risk of paying more money for the stability of knowing that you will know exactly what you will be paying each month.