Today’s post is contributed by Amy Nickson, a passionate writer on finance. Amy is a professional blogger whom has started her own blog and also works as a contributor for the Oak View Law Group. Please share your opinions by commenting below.
It is true that life doesn't come cheap. All the time you have to make expenditures. Many of you don’t even know where to start saving. Well, once I was one of you. Today, when I look back at the time I racked up huge credit card debts in my 20s, I really feel ashamed. That time, I only knew to spend money. The word "saving" wasn't in my dictionary.
When I think about my attitudes toward spending in my 20s versus my 30s, they are so different.
Also when I look back, I can see the habits that drained my precious money. Perhaps you, too, have no idea where your money is going. Thus, I want you to beware of money draining traps so that you can avoid them to incorporate a healthy financial habit.
Here you go:
1. Your credit cards are the main money drainers. How?
Taking out too many credit cards invite debts
If you have the habit of taking out too many credit cards, you better be ready to accumulate a huge amount of debt in your life. Random usage of credit cards and not making payments on time certainly push you towards the grave debt cycle. Restrict yourself to a single credit card and use it only when you are in need.
Not remembering the due dates
The due dates are the most important information that you need to remember. You have so many monthly bills to pay off like credit card bills, utility bills, mortgage payments, insurance premium, etc.
Usually you will pay a hefty fee for a payment that is late, even if only by a day or two.
If you keep incurring late payments and penalty charges, you’ll most likely have to make larger monthly payments on the accounts. Thus, it’s always better to remember the due dates and pay on time to avoid paying extra.
Crossing the credit limit
If you cross your credit limit you’ll be charged hefty over-the-limit fees that can again cost you dearly. Try your best not to exceed the credit limit to avoid the extra charges.
2. Your car is draining your money. How?
You are possessive of your favorite old car
Sometimes you believe that your favorite car is old enough to serve you. An old vehicle can cost you dearly in maintenance almost every month or two. It is certainly more cost effective to invest the money on buying a newer car.
Not comparing your car insurance policy
According to a new report from NerdWallet, 38% of Americans who have car insurance haven't revised their car insurance policy in the last three years, or ever. Because of this they are not choosing the most affordable auto insurance policy and even losing up to $1,846 each year on car insurance.
Perhaps you too hardly revise the car insurance policy you had opted for years ago. It is a blunder; many car insurance providers are offering affordable rates just to survive all of the market competition.
You can ask your insurance provider to reduce the rate. If you get a negative reply, you may tell them to discontinue the service. Chances are high though that you’ll get a better price from the same insurance provider. If not, you can always shop around and then switch to another provider who is offering a better deal.
3. Your poor financial knowledge is draining your money. How?
You don't know how to budget
Maybe you know how to create a personal budget, but hate to follow it. Whatever the reasons, not following a budget is costing you dearly, possibly even on a daily basis. Following a budget is not as distasteful as you think. In fact, it is the road map for improving your personal finances. With the help of your budget, you can plan your everyday expenses.
If you usually feel rewarded by visiting your favorite restaurant once a month, no problem, just include the expense in the budget and you are done.
Budgeting helps to track the expenditures. That extra money helps to build a solid savings cushion or an emergency fund. You can also achieve a short-term goal like buying a thermostat or going for a vacation.
You don't revise your budget to make changes
A budget should be evaluated time to time to make the necessary changes. Try to revise the budget once a month to make sure all the expenses are listed correctly. Also, you need to update the bills and the income in your budget.
If you get a raise at your job, you need to increase your debt payments. So, update the budget based on your current financial priorities.
You don't care about your budget when you get things on sale
Discounts and sales are nothing but business strategies. It can be a major money drain if you buy unnecessary things without caring about your budget. Before purchasing the items on sale, ask yourself whether or not the things are necessary; if not, forget about it.
4. The debt relief strategy you are following is draining your money: How?
You are following the costly debt relief method
You are trying to get out of your debts. Great! But the strategy you are following to get rid of your painful debts needs to be perfect. There are many debt relief strategies, but a few of them are money drainers.
For example, debt settlement strategy; it is effective, but very costly.
Opting for a debt settlement method will hit your credit score and you will need to pay taxes on the amount you save. You will have to pay a fee for the service if you opt for professional help as well. So, this solution can actually cost you more than what you will save from settling the debts.
However, it is also true that debt settlement is effective when the outstanding debt amount is high and the debtor is unable to pay off the entire amount but willing to pay a certain portion of the debt.
You don’t know some effective, yet low-cost debt relief methods
Some debt relief strategies are effective to pay off the debt without paying a single penny to a third party.
Debt snowball, debt avalanche, and balance transfer methods are effective debt relief methods if you can manage them properly. You can also take out a debt consolidation loan to pay off your multiple debts.
However, you can also settle your debt on your own by negotiating with your creditors. Negotiating with the creditors to reduce the amount of debt is the major thing. The key ingredient to settle the debts on your own is possessing the skills to negotiate properly along with the financial ability to settle. Because of this you should start saving money first.
Talk to your creditors and convince them to reduce the debt amount. If they agree, pay a lump sum amount to the accounts one by one. Thus, you can get out of your debts without taking help of costly professional service.
It is up to you to avoid the tricky, money draining traps.
Usually people learn lessons from their own blunders. Like me. One blunder that I encountered in my past was believing that renting-to-owning was a good strategy. Yes, I was a crazy fan of the rent-to-own system. But now I know that it is a big "no-no".
I had no idea that rent-to-own companies are money drainers. How?
A rent-to-own option means you need to make a certain amount of monthly payments for the item. But have you ever thought of just how long it will take you to make those payments? By the time you’ve made all payments, you could easily pay double to triple the price of what that item actually costs. And if you miss a single payment, the concerned company (from whom you bought the item) can seize your asset.
The companies, providing the rent-to-own option, are good at making people buy items they don't need. These types of companies attract customers by providing lower monthly payments. It is simply a business trick that can lead to unmanageable monthly bills for you.
So, beware next time; avoid money draining traps to save your precious dollars.