January 15, 2016
The Mistake Horseman
Mistake No. 1: Living on Borrowed Money
As we have discussed in a recent blog, using credit cards to buy essentials has become somewhat normal. But even if an ever-increasing number of consumers are willing to pay double-digit interest rates on gasoline, groceries, and a host of other items that are gone long before the bill is paid in full, don’t be one of them. Credit card interest rates make the price of the charged items a great deal more expensive. Depending on credit also makes it more likely that you’ll spend more than you earn.
No.2: Buying Too Much House
When it comes to buying a house, bigger is also not necessarily better. Unless you have a large family, choosing a 6,000-square-foot home will only mean more expensive taxes, maintenance and utilities. Do you really want to put such a significant, long-term dent in your monthly budget?
Mistake No. 3: Living Paycheck to Paycheck
HBO released a documentary in 2014 depicting the difficulty and magnitude of paycheck to paycheck living. A recent survey on how little most Americans have saved was featured with the headline: “76% of Americans are living paycheck-to-paycheck.” Household Saving Rate in the United States decreased to 5.50 percent in November from 5.60 percent in October of 2015. Personal Savings in the United States averaged 8.36 percent from 1959 until 2015, reaching an all-time high of 17 percent in May of 1975 and a record low of 1.90 percent in July of 2005. Personal Savings in the United States is reported by the U.S. Bureau of Economic Analysis. But other countries had considerably higher rates of personal savings. For example, the Netherlands, Italy, Norway, Germany and France personal savings rates average 10% or more according, to the OECD Factbook 2014. Clearly it is possible to enjoy a high standard of living without financing it with debt.
Mistake No. 4: Excessive/Frivolous Spending
Fortunes are often lost one dollar at time. It may not seem like a big deal when you pick up that double-mocha cappuccino, stop for a pack of cigarettes, have dinner out or order that pay-per-view movie, but every little item adds up. Just $25 per week spent on dining out costs you $1,300 per year, which could go toward an extra mortgage payment or a number of extra car payments. If you’re enduring financial hardship, avoiding this mistake really matters – after all, if you’re only a few dollars away from foreclosure or bankruptcy, every dollar will count more than ever.
Mistake No. 5: Never-Ending Payments
Ask yourself if you really need items that keep you paying for every month, year after year. Things like cable television, subscription radio and video games, cell phones and pagers can force you to pay unceasingly but leave you owning nothing. When money is tight, or you just want to save more, creating a leaner lifestyle can go a long way to fattening your savings and cushioning you from financial hardship.
Mistake No. 6: Treating Your Home Equity like a Piggy Bank
Your home is your castle. Refinancing and taking cash out on it means giving away ownership to someone else. It also costs you thousands of dollars in interest and fees. Smart homeowners want to build equity, not make payments in perpetuity. In addition, you’ll end up paying much more for your home than it is worth, which virtually ensures that you won’t come out on top when you decide to sell.
The cumulative result of overspending puts people into a precarious position – one in which they need every dime they earn and where one missed paycheck would be disastrous. This is not the position you want to find yourself in when an economic recession hits. If this happens, you’ll have very few options. Everyone has a choice in how they live, so it’s just a matter of making savings a priority. For more information please feel free to contact us at Gainplan.
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Gainplan LLC employees providing such comments, and should not be regarded as a description of advisory services provided by Gainplan LLC or performance returns of any Gainplan LLC Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Gainplan LLC manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.