We have all made a mistake or two when it comes to our personal finances and some of us more than others. Perhaps we spent a little too much on the latest tech gadget or maybe we missed paying a credit card bill on time. Mistakes happen and life gets in the way so we do need to bestow on ourselves a little bit of grace. We all want to strive towards financial freedom and the benefits of being debt free but sometimes we don’t realize the very things we are doing are robbing us of achieving those goals. If you are looking to attain wealth and be free of the burdens of debt then be aware of these ten financial pitfalls that may be stripping you of financial freedom.
1. New Car
Purchasing a brand new car is costing you a lot more than you think. We all love the idea of driving off into the sunset with a brand new shiny car. It looks great, smells great, but the monthly car payments do not feel great! I know many people will justify why they need that brand new car but most of those reasons are just myths. The reality of the situation is that a new car comes with a hefty monthly payment over the span of several years. On average, Canadians spend $570 per month on car payments. This is roughly 18% of the average Canadians take-home pay. If you are looking to purchase a vehicle, look for used vehicles and pay cash.
2. Multi Level Marketing Schemes
Staying at home and making money for a few hours of work a week sounds like the ticket to financial freedom. Flexible hours, great pay, bonus incentives like brand new cars … it all sounds too good to be true, and it is. MLM companies prey on people that are already in a financial pitfall and desperately looking to dig themselves out. If you are considering one of these “at home business” schemes then stop now! The statistics show that the odds of actually making money are slim to none. Often people who venture into these schemes pay more for products, brochures, catalogues etc. then they actually make selling the products. Don’t lose money on MLM schemes.
3. Financing
Financing tactics have been around for a long time and we’ve all likely fallen victim to them one time or another. Companies love using these tactics because we all want stuff we can’t afford. You know the slogan “buy now, pay later!” or “zero percent down”. These tactics are used over and over again and yet never go out of style. The truth is that we are a consumer driven society where we want what we want even if we can’t afford it. But the reality is that we end up paying for it in full and then some! Don’t fall for these tactics. If you can’t buy something outright with cash then don’t purchase it! Monthly payments to pay off “stuff” is killing your financial freedom goals.
4. Credit card Debt
If you are continuously carrying a balance on your credit card then you are paying a lot more for those purchases than you think. Credit card companies make a lot more money when you don’t pay off your balance because they will charge you an unearthly interest rate to do so. If you plan to use a credit card then pay it off each month and steer clear of those high interest rates.
5. Frivolous Spending
Are you shelling out a few dollars here and there several times a week? Frivolous spending adds up over time and can be the reason you aren’t getting ahead. Look at your spending patterns to see if you are purchasing things regularly that you really don’t need. Things like your daily Starbucks coffee, snacks frpm the vending machine, lunch out every week. These small purchases add up and at the end of the month they are not so small. Have a budget and stick to it.
6. Mortgage
Purchasing a home is exciting and is a great long term investment. The trouble arises when we purchase a home we can’t actually afford. Not only do you have a hefty monthly mortgage payment but often these homes come with greater upkeep expenses and utilities. Purchase a home that is within your means.
7. Student Loans
We have all heard it atleast once “If you want to get a good job you need to go to school”. Education is important but it needs to be planned for financially. When you graduate and secure employment you will have to start paying back those loans which can take many years to do so. In Canada, the average student has $26,000 in debt by the time they graduate. This will quickly drain that hard earned income and keep you from reaching your financial goals. To escape the pitfalls of student debt, calculate what you will need for school and start saving before you start. Look into financial aid and bursaries to help you get what you need and create a budget and stick to it. You do NOT want to be paying off student debt for the next 20 years!
8. Not having a Budget
If you are living paycheck to paycheck and haven’t the slightest idea where your money is going every month then you likely do not have a budget plan. If you want to secure financial freedom then you need to have a budget and stick to it. This simply means you know exactly how much income is coming in and how much is going out on expenses and debt. You want to plan ahead for things like eating out, entertainment, traveling, and make sure you are not living beyond your means. Knowing where your money goes every month is the first step to achieving your financial goals.
Looking for a great budget template? Check out Dave Ramsey’s Every Dollar Budget Planner.
9. Not Paying off Debt
If you are barely making a dent in those debt payments then chances are you are going to be paying them off for a very long time. Making the minimum payment and not getting ahead of it will certainly keep you from achieving your financial goals. If you want to get ahead then you need to get rid of those debts. Start with a budget and cut down on monthly expenses where possible so that you can put extra money towards those debt payments. The quicker you are out of debt the sooner you can achieve your financial goals and secure financial freedom.
10. Timeshares
Timeshares sound like a great idea when you don’t put a lot of thought into it. Sure, who doesn’t want to have a vacation spot to enjoy for a few weeks each year that you can call your “own”? The reality? Timeshares are extremely expensive and in the end you don’t really own anything! You can’t sell that property and it’s extremely hard to sell that timeshare once you are locked in. Don’t waste your money on a week in the sun once a year. You can rent a hotel and skip the hassles of ever-increasing maintenance fees and expensive down payments.