Financial Mistakes that Can Land You in a Whole Heap of Trouble

financial mistakes

We all make financial mistakes from time to time. We buy stocks that tank or waste money on vacations that add nothing but stress to our lives. 

But sometimes, you can get into the habit of making big mistakes. And they can land you in a mountain of bother later on in life. 

In this post, we take a look at some of the biggest financial mistakes you can make, the consequences, and possible solutions. 

Living By Borrowing

Living by borrowing is, by definition, an unsustainable practice. And it is one of those things that can spiral out of control way faster than you would think. 

You’ve heard of the power of compounding for investments? Well, it works the same way for debts too. The bigger the amount you owe, the bigger the interest payment. And the more of the interest payment you miss, the larger the amount you owe, and so on. 

To avoid this issue, skip credit cards. Don’t spend on anything you don’t need. And avoid expensive unsecured loans. 

Selling Bad Products or Services

Selling products and services is a wonderful way to become exceptionally rich. However, it is also a dangerous road. If you sell faulty or counterfeit items, you may wind up on the TMF list. And once you’re on it, it can be hard to take payments or even set up a business bank account. 

If in doubt, test your products and services first. Collect feedback. And if customers complain, be sure to offer a refund through regular channels. Avoid chargebacks at all costs. 

Buying Only New Cars

If you want your wealth to evaporate quickly, buy new cars. New cars are super expensive for a couple of reasons. First, they come with VAT, meaning that you have to pay around 20 percent of their value straight to the government. (There is no VAT on the second hand market). 

Second, they depreciate rapidly. After five years, your car might only be worth 50 percent of the purchase price. So if you spent $30,000, you lost $15,000 over 5 years or $3,000 per year. 

If you absolutely need a car (and not everyone does), choose a relatively new one but still second hand. This way, you can avoid the lion’s share of depreciation costs while also avoiding large maintenance and servicing bills common on older vehicles. 

Dipping Into Home Equity

Once you discover that you have equity in your home, it can be tempting to dip into it and use it as a piggy bank. But it would help if you avoid this at all costs. It’ll prevent you from building long-term wealth, and it could jeopardize your retirement. 

If you absolutely need to dip into your home equity, consider using a home equity line of credit. This way, you can pay back into your home at the end of the month, like a regular credit card.

Making costly financial mistakes can throw your life off course. So stick to the basics and avoid taking unnecessary risks. In the fullness of time, you can almost always have the things that you want. 

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