Personal finances rise and fall, as various internal and external influences take their toll. Favourable financial fortunes may prevail for a time, only to change course and disrupt your financial stability. What’s worse, some of the factors affecting your finances are beyond your control. Global economics, for instance, has a close-to-home impact on your financial security, but you cannot alter its course. And when financial markets melted-down in 2008, you probably didn’t do anything to contribute to the downturn. Fairness aside, these are the realities of modern economics, but you can still protect yourself from some of life’s financial vulnerabilities.
Missteps to Avoid
If anything’s certain, it’s that you’ll make mistakes during your lifetime. Particularly in matters of finance, knowledge and experience sometimes lag behind your financial responsibilities, leaving you without the tools needed to make prudent moves. Learning from your mistakes keeps you from repeating the same errors over and over again, but when money’s involved, a single major misstep can have a devastating impact on your financial well-being. Fortunately, avoiding some of the most costly errors will keep you on the path to financial security.
Repayment Default – Financial commitments vary in scope and size, each bound by legal and social conventions. When you borrow money, for instance, it must be paid back. The stalwart principle is at the heart of personal finance success and global economic health. Failing to pay back borrowed funds leads to individual consequences and when it becomes a collective problem, an international domino effect can lead to large-scale problems like those seen during the recent financial crisis. As a result, above all else, you cannot default on credit repayment.
Your credit score follows you through life, so each financial step becomes part of your record. Minor missteps, such as a late payment or carrying large balances will push your credit score down, but subsequent good behavior is enough to reset your score to a number you can live with. Loan default, on the other hand, crushes your credit rating, shaving hundreds of points from your score. A single such money management mistake can undermine your financial health for a decade or more. Not only does a record of credit default limit your borrowing options, but your poor credit score may also interfere with housing, employment, mobile phone contracts, and other arrangements requiring good financial references.
To avoid default, borrow responsibly and take a proactive approach with creditors. When repayment problems do appear, working with your lender may uncover repayment alternatives you can afford. Avoiding them, on the other hand, leaves lenders little choice but to report your default to credit agencies.
Having a Go without a Financial Plan – Financial planning puts things in perspective and helps you reach your financial goals. In fact, one of the first exercises of a successful planning session is identifying your financial priorities. Are you growing a family? Do you hope to someday buy a house? Are you eyeing State Pension Age as your retirement date? Answers to these and other important questions help guide your financial decision-making, so the things that matter most are attainable. Your house deposit won’t appear overnight, for example, so getting an early start saving gives you the best chance of becoming a home owner. And your kids will need a financial boost at uni, so planning for their education gives you time to set aside resources. Without a well-articulated plan, long-term savings will likely suffer and you’ll have a hard time reaching financial milestones. For the best outcomes, craft a comprehensive financial plan and stick to it. Periodic review will keep your plan current as life changes warrant tweaks to your prosperity blueprint.
Borrowing Blindly – With so much information available to consumers, there is no excuse for paying too much for credit. From competitive car lending to personal loans, rates vary, so staying informed keeps your credit costs low. Even payday lenders provide opportunities to evaluate pricing online, so whether you need a mortgage or a short-term bridge loan, information is available to ensure you don’t pay too much for your next loan.
Even though the odds are stacked against you at times, with economic pitfalls beyond your control, your ability to avoid financial hardship is a valuable asset. Use it to sidestep major mistakes and you will avoid some of life’s most painful financial lessons.