We’ve talked about how you need to think about the future of your finances to benefit both you and your family. What we haven’t yet discussed is the issues that can drag your finances through the ringer. These problems can kill your finances and they can develop incredibly quickly. One minute your finances will be fine and the next they will be in the toilet. There are various issues that can have this type of impact on your money. Let’s look at them and figure out how to deal with them effectively.
Dealing With Depreciation
Depreciation can be a real finance killer and that’s why you need to be careful what you see as an investment. There’s nothing wrong with buying a new car. But you do have to realize that this will hardly ever be an investment. It’s a luxury purchase or a treat, it’s not a smart financial decision. A car will lose a massive percentage of the value in the first year.
If you can afford to buy a new car outright, this isn’t an issue. However, when you need to borrow to buy a new car, you can run into trouble. Buying a car on finance or credit can lead to massive bills that will be difficult to pay back and an interest rate that quickly grows out of control. When this happens, it will eat away at your finances and you can end up paying a lot more than what the car is actually worth.
That’s why, if you don’t have the money to buy a new car outright, you should opt for one that is second hand. Be warned though, a second-hand car can be incredibly expensive if you don’t choose wisely and get a car that is riddled with issues.
Car’s aren’t the only products like this that can have massive levels of depreciation. Anything tech related can drop significantly over a short period. As such, unless you are obsessed with the latest tech, you might want to think about getting computers, laptops, and phones second hand. You can even purchase them refurbished so they are as good as new.
Getting Stuck With A Home
A home is an incredibly valuable asset to have. This is why as soon as you hit twenty, people will be pushing you to purchase a home. This makes sense because until you can actually purchase a property you will be renting and that’s dead money. Unfortunately, though, there are a few ways that buying a home can lead to money trouble. The first is with the mortgage repayments.
Mortgage repayments can be expensive and can quickly reach a point where the cost becomes unbearable for new home buys. Particularly when taking into account higher bills that you might not be used to. Heating a three bedroom home is not going to be the same as heating a two bedroom apartment.
The easiest ways to avoid this is to make sure that you’re financially safe when you buy. One of the ways to do that is to save as much as possible for the deposit. By doing that, you can gain access to the best mortgage rates and of course, you should be looking at ways to improve your credit rating too. Once you have done this you will be in a far stronger position when you are paying off your home.
Next, you need to think about the issue with getting trapped in a home. You may reach the point where you want to move house either for personal or professional reasons. The problem with this is that you can end up in a position where your home won’t sell. That could be due to a problem with the property that needs fixing, an issue with the housing market or even a problem with the overall economy.
If you have no choice to move, you will still need to relocate even if you can’t sell your home. When you do that, you will find that the property you can’t sell becomes a massive drain on your accounts. Don’t forget, you’ll still be paying all the bills and you can’t leave the property empty because this might make it even hard to sell. As such, so also need to take into account the potentially large cost of traveling back and forth. Dealing with this is a matter of finding the fastest way to sell while still making money off your home. Luckily plenty of businesses do this as an investment with additional details available online.
Building A Debt With Credit
A lot of people live for today rather than tomorrow. Unfortunately, this has lead to people using credit cards to live beyond their means. Ultimately, they pay for things that they would never be able to afford without a credit card. This is a mistake. If you buy on credit, you should only make purchases that you know you will be able to pay back. These days, it’s easy to work out what you can afford to buy with a range of different calculators online that will take into account different interest rates.
This doesn’t mean that buying on credit is always bad news but you have to make sure that the debt remains both manageable and completely affordable. Otherwise, you will end up in serious financial trouble.
A Bad Investment
Finally, you can end up in a financial trap if you make a bad investment. A bad investment will hit your finances hard, particularly if you put too much money into it. It’s important to remember that any investment is only ever a stone through away from a gamble. You can make educated assessments, but even then, you will struggle to guarantee that an investment won’t backfire. That’s why it’s important to make sure that you are only investing as much as you can afford to comfortably lose. If it would hurt you to miss the cash you put in, then you should not be investing at all.
We hope you see now that there are dangerous traps that much be avoided. This is incredibly important if you want to keep your finances safe today and indeed, tomorrow.