Financial management is highly personalized, yet despite our differences, many of us face similar financial challenges. Whether it is runaway spending, unmanaged debt, or another financial force weighing heavily on your personal finances, chances are; your neighbor has experienced the same type of difficulty, at one time or another.
Each person comes to terms with a unique set of financial particulars, but regardless of income level, age, or occupation, effective money management is always the result of sound reasoning and dedication to proven financial principles. Unfortunately, just like these time-tested moves can help pave the path to prosperity, another group of bad habits lies at the heart of many of the common financial problems shared by people from all walks of life.
A Change of Behavior Will Keep You Afloat
When financial fortunes falter, the only way to correct your course and avoid future problems is to root-out the cause of inconsistencies and take measures preventing financial flare-ups. As you put your own financial behavior to the test, pay particular attention to the following bad habits, capable of undermining your financial health.
1. Living Beyond Your Means
Although your financial responsibilities may include widespread obligations, complicating household money matters; effective personal finance boils-down to a straightforward principle. Living within your means is, in fact, the only sustainable strategy for managing money.
Effective budgeting balances your incoming resources with ongoing spending obligations, ideally covering costs, with enough money left over for savings and long-range financial needs. As long as you consistently earn more than you spend, your household budget stays balanced, and progress is made achieving financial goals. Spending more than you earn, on the other hand, creates an unsustainable personal financial cycle, often leading to excessive debt and sometimes much worse.
2. Careless Use of Credit
Access to credit helps you realize personal financial goals, funding purchases you wouldn’t otherwise be able to afford. Long-term financing for cars, homes, business ventures and other major spending provides resources up-front, allowing to slowly pay for the things you buy today. Even short-range alternatives such as credit cards and payday loans serve vital functions in today’s consumer economy, letting you buy on margin, when you do not have cash on hand to pay for purchases. Left unchecked, however, these credit conveniences can turn against you, causing lasting financial difficulties.
Careless use of consumer credit can undermine your family budget in two distinct ways:
Quantity – Excessive debt weighs heavily on household cash flow. If debt obligations have grown beyond affordable levels, turning-back spending is the only way to find equilibrium. Once your finances are stabilized, committing to a balanced budget keeps you on track, requiring spending discipline and credit restraint.
Quality – The scope of your personal debt is not the only source of potential financial problems. In addition to the size of your debt load, the types of credit you use can also put you at risk for overpaying or backsliding into unmanageable conditions. For the best results funding personal spending, use the right kind of financing for each need. These are only a few of the financing options available to consumers:
Credit cards – Strictly a short-term convenience, high interest revolving credit should not be seen (or used) as a long-term funding solution. Finance charges on balances held for more than a single billing cycle quickly surpass more affordable fees tied to other forms of financing – often making credit cards the most expensive option available.
Guarantor loan – When flexible financing is needed, but credit numbers don’t measure up, guarantor loans furnish a unique alternative. To strengthen an applicant’s eligibility for financing, a guarantor loan is issued based on assurances made by a second party. With both individuals guaranteeing repayment, borrowers can select from competitive rates, without paying a premium for fast access to cash.
Instalment loans – General financing appropriate for a variety of needs, instalment loans can be used to fund education, make a new car purchase, carry-off home improvements, or to address other spending priorities.
Consolidation Loan – Aimed at consumers with outstanding credit balances, consolidation loans are a form of refinancing, which can lead to lower payments. To save money on interest, borrowers repay multiple creditors with a consolidation loan, and then make payments on the new loan, until the balance has been eliminated.
Financial challenges are not unique to a particular group of consumers. On the contrary, the same types of obstacles thwart personal money managers from all walks of life – often resulting from shared bad habits. Among the most damaging practices are spending more than your earn and making poor credit choices. If you are serious about reinforcing your financial health, correcting bad habits is a good start, buoying your fortunes in sometime rough financial waters.