Are you looking for financial tips to help improve your financial life? Well, chances are you’ve already found them and are halfway through implementation. However, chances are also that you may be implementing the wrong ones, and that may be the reason why you don’t see any progress.
Money is a hot topic, often clouded with emotions, which may lead one into making a wrong decision. Everyone yearns for financial independence, and it’s this craving that leads people into taking poor financial advice either from friends, relatives, or the internet.
Some are good, others are bad, and this article will highlight some tips you should throw out of the window.
1. Steer Clear of Credit Cards
This is by far the most common tip passed down from parents to their children. Many people link credit cards with debt, and it’s reasonable to understand why. First off, the interest rate is high, and then you have to deal with the low minimum payments, which can lead you to carry a balance and, in turn, incur a hefty interest, rate.
Credit cards also encourage impulsive spending, and both these reasons can lead you into a debt cycle. However, what most people don’t know if these actions are avoidable. Discipline is the key word here and with it, there are a ton of benefits to reap from using credit cards.
For instance, you can make simple purchases, which can help you build a credit profile. Also, every time you use the card to make purchases, you’ll earn points. Afterward, you can redeem them for travel miles, items you might want, or even cash.
Credit cards are addictive, so if you have a problem keeping a leash on your spending, then a secured credit card may be the solution. These types of credit cards are similar to normal cards; however, as the name suggests, you’ll first have to secure the card by making a cash deposit.
In addition, they have low limits, often no more than $3,000. This means you won’t fall deep into debt and if you do, there’s your security deposit to take care of it. In the meantime, you can learn how to be responsible with credit cards.
There’s also a misleading misconception about card balances. People believe carrying balances on their cards will boost their score, which is false. Carrying debt has a negative impact on your score. First, because this will increase your utilization ratio.
Financial experts recommend maintaining a 30% utilization ratio. Carrying balances will only serve to increase this ratio and eventually lower your score. Therefore, it’s important to clear all balances to avoid paying more in interest.
2. Play Safe with Investments
Of course, you shouldn’t invest without doing your research. This is especially true for those who suffered under the last recession. However, it’s one thing to be informed about your next and investment and another to play too safe with them.
Playing too safe in this case means avoiding high-risk investments, such as the stock market and opting for the less risky ones such as savings account. While that may sound like a great way to invest your money, the returns associated with these investments are only slightly higher than peanuts.
Their low returns hover around 2 and 3 percent per annum, which doesn’t even keep up with the rate of inflation. In short, this means your money will lose value as time goes by. On the other hand, this doesn’t mean you should dump all your money into high-risk investments.
You’ve probably heard of close friends and relatives complaining about how they lost a fortune in the stock market. Such news can discourage you from investing in stocks, but it’s important to understand the risks involved. Sometimes you lose, but sometimes you win.
Consider index and mutual funds. These are a collection of multiple, bonds and stocks, in addition to other assets. By investing in them, you can limit the risks involved and at the same time reap, higher profits than you would with a savings account.
The stock market can return huge profits in mutual funds, which are safer than other investments, but even these can lose money.
3. Cut Back on Expenses to Save Money
If you’re thinking of financial independence, the first step is to live within your means. This means spending less than your total earnings. Having said that, it’s also sensible to arrive at the conclusion that in order to save money, cutting back on expenses is the best route to take.
While this may seem like a magnificent idea, the truth is that it’s not easy. Keep in mind this requires you to forget dining out, going for family holidays or even buying your favorite snack.
These are things you’re used to and require a lot of discipline to pull it off. Without it, though, it’ll only be a matter of time before you ditch the whole plan and fall back to your old habits. Again, however, decreasing your expenses doesn’t mean you shouldn’t make any budget cuts in what’s necessary for your life.
Instead, make cuts on things you’re able to. It’s common sense that the best way to save more money is by earning more. Consider starting a side job, by leveraging your skills for money, such as freelancing. Driving an Uber or even dog walking are some side jobs you can consider.
The money you earn from these side jobs can go into your savings. This way, you won’t have to sacrifice what you love at the altar of savings.
- Stay Away from Unwanted Loans
Emergencies can occur so the need for unexpected money needs. Though a good saving habit will eventually help you to cover those emergencies since you have some money saved in the piggybank. Most of the people consider taking short term $500 loans in such situations since it is easy for them to manage the situation with the help of such loans. However, one should always look for the interest rate before taking such loans so play on the safer side.
5. Owning is Better than Renting
This statement’s face value lives up to its billing. First off, many people consider rent as a waste of money. In their view, this is money you can use to pay down a mortgage instead of enriching the landlord. In addition, paying the mortgage increases your home’s equity. Also, mortgages will come to an end. Rent, on the other hand, is continuous. However, dissecting this issue to its core reveals interesting facts.
The first one is owning a home is more expensive than renting one, but that will depend on your area of residence. You have to factor in property taxes and home maintenance costs. On the other hand, renting has only one cost. The rent itself, and it’s more predictable. The only worry is an increase in the rent, which doesn’t happen often.
What’s more, renting offers freedom of movement, especially for young people who love traveling or may want to switch jobs later on. While buying a property comes with multiple advantages, it’s not always the best solution. Therefore, it’s vital to evaluate your life and financial situation before taking out a mortgage.
6. Prioritize Debt Payment
It may sound absurd but paying off your debt shouldn’t be your only priority. Don’t go 180 degrees in the opposite direction, though, and ignore your debts instead. Being debt-free is crucial when trying to get off the chains of financial dependence.
Nevertheless, prioritizing debt payment while turning a blind eye on other financial obligations will only damage your wallet because the interest rate varies from one debt to another.
For instance, you should also prioritize saving. This way, you’ll have an emergency fund to tap into should you run into unexpected financial problems. In the end, this will keep you from incurring more debt to cover an emergency.
Also, if you have a job that provides a 401 (k) and an employer match, contributing toward it to max it out will provide more returns on investment, which outweigh the interest paid on your debt.
It’s important to make the minimum monthly payments on all debts to steer clear of penalties associated with late payment. However, the total amount you can contribute toward offsetting the balance will depend on your financial situation.
Don’t take all financial advice as the truth. Some will leave you worse off than you started, while different ones will elevate your status. After reading some of what you should ignore, you should be in a better position to achieve financial independence.