When it comes to being financially solid, not only do you need diligence and perseverance, you also need to make smart financial decisions!
Though things happen in life outside of our control, but then there are other things we can choose. On your journey to being financially successful, you’ll want to be sure you steer clear of these 5 financial potholes that can leave you broke!
1. Taking out a payday loan.
Payday loans are one big financial ‘no no’ that should never become an option for anyone. Payday loans can charge you huge interest, up to as much as 400%!
Elliott Clark fell on tough times when his wife broke her ankle, and he had to take out payday loans totaling $2,500. But soon, this small debt ballooned and cost his family over $50,000 in interest.
‘Those places shouldn’t be allowed to do that. It’s just glorified loansharking,’ he said.
2. Falling prey to a scam.
Too many people have been scammed online or by phone by people pretending to be someone they’re not. Whether it’s through dating sites, social media, email, smartphone apps, text messages, phone calls, mail or any other way people can contact you, the fraudsters out there are alive and well. Check our scams and ripoffs section to be sure you never fall for a scam, and when in doubt, ask a trusted friend or family member for help. There are far too many people who needlessly fall prey to scams by willingly giving criminals their information, just because the were not aware of the risks.
Read more: The 10 most common phone scams right now
3. Being a cosigner.
Clark recently talked about cosigning on the show, and discussed how detrimental it can be for your financial well-being. Nearly 4 in 10 cosigners become responsible for the primary borrower’s loan, according to a CreditCard.com survey. In addition, 26% of the time relationships between the primary borrower and cosigner are broken due to the strain issues with the loan places on a relationship. Too many times a parent has to dip into their hard-earned retirement savings because they agreed to become a cosigner on a child’s student loan.
If you don’t mind losing the money and consider it more of a gift, that’s one thing — but most of the time, cosigning is a bad idea for all involved.
4. Taking too big of a gamble on a business idea or the stock market.
Sometimes it’s good to take risks in life. As the saying goes, ‘If you never try, you’ll never know!’ However, it’s also good to keep your wits about your when you do decide to take a risk, in order to ensure you have sufficient backup in case the plan fails. It’s definitely smart not to put all your eggs in one basket!
You might have heard the unfortunate story of the person who played the stock market like it was Vegas or the person who took out a business loan against their home and the business failed. While there are incredible stories where choices like this do turn out well, in too many cases, they can be a dangerous move that can set you up for financial heartache for years to come.
When it comes to investing, Clark recommends not buying single stocks, since those are up one day and down the next. Instead, he recommends index funds, which are a mixture of many different stocks and companies across a wide array of industries. Click here for Clark’s investment guide.
And when it comes to business, it’s smart to test the waters part-time before you quit your day job, and never put more money into a business than you can afford to lose.
5. Over-committing yourself to too much debt.
Whether it’s a mortgage, a student loan, a car loan or a business loan, you have to be extra careful when borrowing money. If something ever happens that you don’t anticipate, you could be out a car, your credit, or even your home. That’s why for all of these cases it’s smart to do two things: 1. Have an emergency fund, and 2. only take on loans you can really afford.
For a student loan, Clark says to be sure you don’t take out more than what you expect your first year’s salary to be. And for cars, it’s smart to buy a two-year old used car, since it still has 80% of its life left, while you’ll be paying 50% of what it cost new. Take out the shortest loan you can afford to pay the least amount of interest to pay the least amount of money overall. Of course the best way to buy a car whenever possible is to pay cash.
Here are some other resources to help you avoid overcommitting yourself to too much debt:
- The ‘Clark Smart’ steps for buying a new car
- Best ways to get a small business loan
- Why you should buy a house below your means
Sidestepping these financial potholes can help you avoid losing a lot of money. What are some other detrimental financial choices you would avoid?
Read more: 9 financial mistakes you will regret forever