One of the key financial mistakes for many home buyers is the challenge of building up a cash reserve. It can go toward making a bigger down payment and also creating a fund that can go to home repairs and renovations.
Getting there proves difficult for many. However, it’s not as complicated as it seems. Many people simply have not taken the time to assess their financial situation and spend accordingly. Common financial mistakes, some very small, can create big issues down the road.
The following list covers some of those mistakes. Implied in all of this is the fact that it does not pay to hide or avoid thinking about financial issues. Unless issues related to money are tackled head on, they will never get resolved.
Following these steps can help create a cash next egg faster than many might think.
Nickel and Diming
A nest egg of cash is built one dollar at a time. Losing it happens one dollar at time, as well. Small, frivolous expenses can add up fast if not reined in. Examples can include eating out often, buying streaming movies and other entertainment, bad habits such as smoking, expensive hobbies and excessive shopping. These little expenses can make a person feel better in the short term, but will cost in the long term. Think of it this way: spending just $30 a week on extra stuff can cost $1,560 over the course of a year.
This goes hand in hand with nickel and diming money away. The savings rate in the United States hovers around 5 percent, about half as much as many European countries. By focusing on savings rather than spending, people can put away a little at a time. As the $30-per-week examples shows above, it can add up quickly. Just calculate what you can do with $50 or $100 a week.
Another common financial mistake that too many people make. Endless payments can come in many forms, although car payments are among the most common. Locking yourself into a long payment schedule for a car, cable television, expensive phone plans and club memberships can cut deeply into potential savings. Take the time to closely examine your reoccurring payments and determine which ones you can live without. Keep in mind that small savings lead to big cash reserves, eventually.
Too Much Debt
There’s good debt and bad debt. A home mortgage is an example of good debt. As long as you don’t over extend yourself by buying too much house, you actually build equity in your home as you pay it off. But other debt is simply not good. The worst case is financing your lifestyle through credit cards to the extent they cannot be paid off each month. As credit debt builds, so do monthly interest payments. Paying high credit card interest eats up any extra cash you might have. Sit down with your credit card bills and come up with a plan to pay them off over a set amount of time. And vow to never over spend with credit ever again.
Living Beyond Your Means
This goes along with every other item on this list. Spending beyond what you are making can lead to debt, zero cash in reserve and living from paycheck to paycheck. As with most of these areas, this is one that requires time and effort. If the monthly bills are too high, analyze where cash is going and cut down living expenses below what is coming in every month.
Skipping A Budget
No one outside of accountants and financial planners think it’s fun to create a budget. But they know what they are doing. Everyone could benefit by taking a page from their book and creating a monthly budget. This can control spending in many of the categories listed above and help people build up cash reserves more quickly.
All of the above can help people avoid financial mistakes. Take the time to invest in yourself and create a budget and spending habits that help your finances, not hurt them.