Money Traps that Sabotage Financial Success
Most of the money traps that prevent people from reaching financial success are the ones they inadvertently set out for themselves. Credit cards can be a great financial help to some people, just as red wine has its health benefits. But to the alcoholic, any wine is poison. And to the shopaholic, credit cards are dangerous. Many people tell themselves so-called “white lies” that can trip them up when it comes to their personal finances. By avoiding the 5 money traps that sabotage a wealth plan, it’s possible to think and grow rich.
Relying on a pay increase
One money trap that can set a person up for failure is the reliance on pay increases or bonuses. Some people buy a home they can’t afford with the expectation that it will become easier once they receive their next pay raise. It’s better to buy a less expensive home so that a job loss or pay cut will not result in having to go into foreclosure.
Expecting to get the money back
Another way people fool themselves when it comes to money is expecting they will recoup the money they spent. Some people justify expensive home renovations, thinking it’s an investment. However, when the housing market is down, a home appraiser may not think the costly home renovations warrant a high asking price.
Believing some debt is good
A lot of financial experts claim there is good debt and bad debt. However, any debt is bad if it leads to stress or emotional distress. Even though it’s important to get a college education, it’s not necessarily worth it to take out college loans at a high interest rate. Also, mortgage debt used to be automatically considered good debt. For people who are underwater on their mortgages, mortgage debt is anything but good.
Waiting for a bail out
Some people overspend because they figure someone or something will bail them out eventually, whether it’s a parent, spouse, the lottery or new job. To be financially successful, people need to take personal responsibility for their financial decisions and spending habits. People who live below their means and save for hard economic times don’t need to borrow money from friends or family. Build up a 6 months emergency fund to cover unexpected expenses.
Thinking there is plenty of time
While it’s smart to delay making any major purchase, it’s not smart to procrastinate contributing to a retirement account or savings plan. In order for money to grow, it needs plenty of time. Financial analysts say people who contribute to a retirement plan in their 20s don’t need to invest as much in order to have more money saved compared to the 40 year old that waited 20 years to start investing. Stay out of debt so it’s possible to jump on a good real estate deal when interest rates are at historical lows and it’s a buyer’s market. Save early and often for retirement in case Social Security benefits are reduced dramatically in the future.
Instead of rationalizing purchases, financially successful people are honest with themselves and others about how they spend and save money. Get ahead financially by being productive each day and putting at least 10 percent of all income aside for the future. Realize that grabbing hold of wealth is as simple as setting limits when it comes to spending and setting goals when it comes to saving and investing.