How To Avoid Financial Baggage
We’ve all dealt with people who’ve brought emotional baggage into our relationships. Sometimes, we might have even been the one with baggage in tow. But did you know that in addition to emotional baggage, there’s another kind of baggage that can throw our life into chaos? It’s called financial baggage, and you might be lugging it along without even realizing it. Consider these common bad money mistakes and habits that can sabotage your financial future.
College costs have exploded in recent years. Tuition, room and board at a four-year institution averaged $37,990 per year for the 2014-2015 school year, according to the National Center for Educational Statistics.
In addition, only about 36% percent of students graduated within four years of starting college in 2011, according to U.S. News & World Report. So college costs may grow from what parents expect to pay at the start of college.
If you are a parent co-signing for your children’s student loans, set expectations from the beginning on what they need to do. Keep a close eye on grades and make sure your hard-earned money is not going to waste. Whether you are a student or a parent co-signer, contemplate community college for the first two years to cut costs, and actively look for grants and scholarships.
Credit cards are an easy way for you to spend more than you make. However, they can also be a great way to build credit if managed properly. Use credit cards only for what you need, and be sure to pay them off each month. Avoid lifestyle inflation and over-spending to keep from kicking the can down the road.
Having been a loan officer for over 20 years one of the biggest debt loads I see are cars. Cars are perhaps one of easiest ways to watch your hard-earned cash go out the window, with very little return. Many people overspend on what is likely the biggest depreciating asset we all have.
I recommend buying a used car, maybe 2-5 years old, and paying cash for it if you can. The other tip is to drive it longer, avoid buying a new car every couple of years, and you won’t be paying sales tax every few years.
You need to figure out exactly how much you can afford to spend. It’s even more important to stick to that budget when you find it. This way you aren’t caving in when you find the “perfect” place, but it is outside your price range. I’m often having the conversation with people about affordability vs. approvability. I can oftentimes get someone approved for a loan amount that may not actually be that affordable for them. This is why it’s extremely important to have a conversation with a professional about how much house you can afford. Many times you will hear to put your housing expense at 30% of your income. However, this is often looked at as your gross income. I recommend keeping your expense at 25-28% of your net income.
If you are finding yourself in a situation where you absolutely need to get a payday loan, there is something wrong there. Take a hard look at your spending, and avoid these at all costs. Your credit gets hit pretty hard anytime one of these places inquires about your credit. Not only that, they often carry extremely high interest rates, and can be near impossible to get out of.
We all know that kids can be very expensive. There are many reasons that we end up spending more on our kids than necessary. Sometimes we’re worn down. Sometimes we think that we want them to have more than we did, so we spoil them! As I look at the financial picture for thousands and thousands of people over time, I see recurring areas of over-spending on kids.