PHOTO: SeniorLiving.Org
Making consecutively poor spending decisions can leave you drowning in a sea of debt. The following article explains the most common ways you could end up shooting yourself in the foot financially.
Making Too Many Small Purchases and ATM Foreign Withdrawals
You may be good at keeping up with big expenditures but not so good at monitoring your spending habits when making small purchases. Small purchases can quickly add up, especially when they’re made on impulse or done by habit.
Another way you can go over your monthly budget is regularly withdrawing money from a foreign ATM. The majority of banks charge a flat fee between $2 and $5 (this fee is higher when you withdraw money abroad) for withdrawing money from an ATM outside your bank’s network.
Moreover, the bank that owns the ATM can charge an additional fee for making cash withdrawals. Essentially, you’re paying the bank to withdraw your own money!
Making too many small purchases and foreign ATM withdrawals can quickly deplete your finances and create more bank fees the longer your balance remains in the negative.
Having Too Much Credit Card and Loan Debt
Purchasing items on credit is a convenient way to cover expenses when your budget is already stretched to the limit. The interest charged on credit card balance grows bigger and bigger when you only pay the minimum amount due.
This is also the case when taking out a personal loan and/or student loans. If you don’t aggressively work at paying off your high credit card and loan debts, they can quickly cause your life to spiral out of control.
Living Beyond Your Means
One of the most common ways many people end up in debt is buying too many things they can’t afford.
If you’re spending more than you’re saving, it could lead to disaster if you lose one or both of your incomes, face a medical crisis, or have to pay for a major car or home repair.
Lending to Friends That Never Pay You Back
Generosity is beautiful but when you loan money out to people that never pay you back, your financial stability will suffer.
Additionally, always tipping on the dollar and donating to charities can add up over time.
Draining Your Retirement Savings
Raiding your retirement accounts is a bad idea as well.
Not only does regularly withdrawing retirement money hinder your account’s growth potential, you could end up incurring a double tax bill.
Tips on How to Avoid Debt Pitfalls
The key to stopping habitually making $2, $3 or $5 purchases on impulse is to follow the DIY rule as much as possible or by using coupons and buying small items in bulk.
Although using credit cards gives you the option to pay later and protect you from losing your cash if it’s stolen, using one on a daily basis is dangerous. Prioritize your wants from your needs and pay off more than the minimum payment due to avoid high-interest payments. Also, try to pay your loan debts on time and as soon as possible to preserve a good credit score.
Rather than completely turning off your fountain of generosity, consider who and how much you’re willing to give your money to. See your retirement as a frozen asset that’s presently out of your reach.
Living within your means by sticking to a monthly budget is another important step to staying out of debt. Once you’ve reached your budget’s limit, refrain from spending any more money. There are also certain banks and many online resources available that make budgeting and saving a regular (i.e. budget tracking apps, money-saving sites) priority