Financial disaster is always a looming threat to both your business and personal lives. All too often, we forget that the “good times” can often create a perception bubble. The time to plan for financial disaster is during the good times. This makes you less reactive.
I’m by no means asserting that you should live your life in a state of paranoia, far from it. I’m suggesting that you take a number of steps that help you better enjoy the good times.
Let’s go over a few steps that can help you lower your risk of financial catastrophe.
Borrowing Too Much Money
Just sign the papers and the mortgage is all yours.
But is it too much debt?
What about the car loan?
Loans, such as auto and home, consistently put Americans in perpetual debt. The problem is, these loans are considered “normal personal finance.”
And yes, they are, but not when they create outrageous, unaffordable debt.
Living Beyond Your Means
The tragedy of getting lured into believing you’re richer than you are is very real stuff. Often, having a “good month” can lead to that feeling of “deserving an award.”
Awards are often big flatscreen TVs, jewelry, and even a new car.
But can you really afford it? Or are you creating a recipe for future disaster?
Live a bit below your means and you are less likely to ever have to deal with such repercussions.
Not Having a Rainy Day Fund
Investments are wonderful, but what about having straight up cash? When it comes time to pay the mortgage and the heating bills during a financial slump, you will need cold hard cash.
But too many Americans take a pass on saving cash. Often, they feel that the money “isn’t working for them,” so they opt for investments over a straight up emergency savings account.
True, your savings account isn’t “working for you,” but that’s not the point of it.
The point is having an emergency fund to pay off essential bills while you transition to the next stage of your financial life.
Using Your 401K For Emergency
Because people often don’t have a rainy day fund as we discussed earlier, it often means people end up making drastic choices when a downswing in their personal finances happens. But cashing in a 401K is more than just compromise to your retirement ambitions, it also has horrible tax implications and you end up losing out huge.
Cashing in a 401K early has been known to ruin people financially because they end up owing a large tax bill.
Not Paying Full Credit Card Balances
Americans are notorious for buying things they can’t afford. Credit cards make it easy to do. But its a recipe for disaster. Many people believe that the point of a credit card is to carry a balance and pay lower payments on big-ticket purchases.
The best way to use a credit card is to safeguard your spending (eliminate criminal threats to your bank accounts that often come with a debit card) and accumulate rewards.
But you need to pay off the balance each month, otherwise, the interest will eat you alive.
Pay attention to loans and their interest rates, don’t overspend on products you hardly need and save cash. It only takes a few easy and simple steps to safeguard your financial future.