We already hear about those stories where the lottery winner now has millions upon millions at their disposal, and after a period of being irresponsible, the money is gone. I’ve often wondered how you can have that much money and go broke. Even if you went on a spending spree, how is it possible to still go through that much, even after you have bought everything that you want. Well I guess a period of irresponsible spending and poor investing, it can go quickly. While we may not be millionaires, we must remain in control of our personal finances, so avoiding any behaviors that could potentially lead you down the path to being broke.
Co-Signing on a Loan
There’s enough to worry about on our own credit report, let alone putting your credit score in the hands of someone else. By co-signing for a loan, you may help the other person get approved for a loan that they would not be able to otherwise, but their payment history is now just on you as it is them by having your name attached to it. If you are looking to help someone out by co-signing, make sure it is someone you can trust, and also have access to the account statement that you can be able to check up to ensure the payments are being made on-time and you have nothing to worry about.
Falling Victim to Fraud
This unfortunately happens all the time, in fact it happened to me last week where my Citi card notified me that I had possibly been a victim of fraud, having four back to back charges outside of where I live, so I checked the online account and sure enough, they were not my charges, and somehow my card had been compromised, even though I still had the card in my possession. On a broader level, Equifax just announced that basically half of the country had been fallen victim of their data being compromised, so you never know when it will happen, so it’s important to stay on top of your credit report to ensure all the information is accurate.
Too Many Unnecessary Purchases
If you take a look at the monthly credit card or debit card statement from the previous month and go line by line to separate what was a necessary monthly expense such as the mortgage, utility bills, car lease payments, grocery store bills, gas, for example, and then add up the rest that could have been avoided such as going to eat, clothes shopping you may not wear again, you may be shocked at what you could have leftover at the end of the month if you only watched what you spend.
Being House Poor
Sure, it’s nice to have a big beautiful house, but not if it means sacrificing the rest of your finances. Just because you get approved for a certain amount, doesn’t mean you should max out what you can afford at that time. We all have difference money priorities; some like to have money available for travel, some like to save dollar that comes in. By buying too much house you could be jeopardizing your future by tying up too much money into a house payment instead.
Paying Credit Card Interest
Credit cards can make financial sense if used correctly. If you look at rewards, you can earn points or cashback dollars just by making the normal purchases you would be making anyways. On the other hand, if you have a spending problem, the virtually endless credit limit that you have could mean disaster if you can’t pay the full balance by the due date and start to pay credit card interest each month, which could be upwards of 16%, and depending on the balance, could now be hundreds of dollars each month paid just in interest. That really sets you back.
Not Having an Emergency Fund
Think about what you would do if you suddenly had to replace your furnace, or your car, or even worse, what would you do if you lost your job and it took a few months to find a new one. Do you have the available funds to cover, or would you put on a credit card? By having an emergency fund of a few months’ worth of expenses in an account for easy access, you can cover these unexpected expenses without having to put on a credit card and pay interest going forward since you would not be able to afford right now anyways.