3 Most Common Money Management Mistakes

It is easy to fall into a financial mess, especially these days. It also seems impossible to keep up with all the financial advice, news, and information that comes out each day. While it is true that solid financial advice often stays the same, new mistakes and poor money management options seem to sprout all the time.

While it used to be common sense not to stretch your dollar to buy a home, many lenders are encouraging us to do so. It also used to be quite difficult to borrow out of retirement funds, but now it seems to be an everyday occurrence. Lenders seem to be armed with more bad advice everyday and it is your responsibility to keep informed and refrain from making bad decisions. Here to help you stay on the path to financial stability is a list of 3 common money mistakes to avoid at all costs.

Using yYour Home Equity Loan to Pay Off Debt

It is quite a common trend nowadays for lenders to try and persuade you to use your home equity loan to pay off debt, especially credit card debt. They back up the idea by pointing out that the interest on the home equity loans is often lower than the interest on credit cards, and are sometimes tax deductible.

A lot of people have bought into this idea, and it does sometimes work. However it only works if you are committed to stop using your credit cards altogether. Many people simply use their home equity loan to pay off their credit cards, and then continue to swipe their cards for new purchases.

All this does in the long run is force you to dig deeper and deeper into debt. What does this mean for many people? They end up borrowing more from their home equity loan and it turns into a vicious cycle. If you do not have the restraint to stop using your plastic, then do not use your home equity loan as a back up to pay off your debt. Home equity loans are great in emergencies and can help you out in many situations, but should never be used to fund purchases that are not long term or well thought out.

Borrowing Money from Your Retirement Fund

While it is not a traditional avenue for companies to allow people to take loans out of their 401(k), it is becoming more commonplace. Many financial companies have encouraged employers to install a loan feature by discussing how it will encourage more workers to participate in the program. While the thought makes sense, that people will want to contribute more if they don’t feel their money is locked away, it can be detrimental in the long run.

It can seem like a smart move to borrow from a retirement fund, because it feels like you are paying yourself back the interest in the long run. Simply put though, it is not worth the risk of damaging your retirement on the whole. If you end up getting laid off then you will be forced to repay your loan within weeks. For obvious reasons that may be impossible.

If it is then the loan will be taxed and penalized and can really put your entire financial status in danger. In essence, in addition to the money you actually borrowed you will be forced to pay back thousands of dollars in penalties, and will not get any of it back later on. A retirement fund is best left to sit, grow, and pay you back later on. Not to fund expenses and purchases now.

Buying a House You Can’t Afford

Real estate agents, banks and all kinds of lenders are working overtime to convince people that they should stretch their budget to buy a more expensive house. Larger loans gain them more fees and a more expensive house gets the realtor more commission.

Even your friends and family members may let you know that overstretching for a mortgage is a good idea. Houses are great investments right? The problem is that the stress and emotion that can come from being house-poor are not worth it. Buying a home for as much as a lender will give you is rarely a good idea.

You may think you are willing to sacrifice everything now for the perfect home, but it often is not worth it in the long run. You will have to say goodbye to vacations, your retirement funds, and even be pushed into more debt to try and enjoy your lifestyle. Any added expense becomes a drain and people who overspend on their house often cannot afford to keep it in good condition or repair it when things go wrong. You are much better off going smaller and having money to enjoy everything else.

The key to financial success and trying to stay out of debt is making smart, researched decisions. There are many people out there that will try and sell you on bad advice, even if they have the best of intentions. While it may seem difficult, keep up to date with new trends and never make a decision in haste.

Things may seem like they are the right decision in the now, but there are many choices you will regret in the long run. Leave your long term investments alone and don’t overspend in the present and you will be much better off when the time comes later on.