Top 5 Biggest Financial Mistakes
We have all done it at some point in our lives. We see something we really want and buy it. The cost of the item is irrelevant as we just want instant gratification. We splurge and buy this item without thinking of how this can create a bad ripple in our finances. This is what originally sunk me into a horrible financial situation. But anything can be overcome with time. You have to take ownership of your finances and monitor them. Here are my 5 biggest financial mistakes I’ve made.
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Financial Mistake #1 – Sub Prime Auto Loan
This was by FAR the worst mistake I’ve made with my credit. I needed a newer vehicle as my vehicle at the time started “misbehaving”. So I went out to a few dealerships and was denied due to my lack of credit history (even though I did pay off my car at the time). While looking online, I found this advertisement for a dealership in a town nearby where it stated “everyones approved”, so I took my chances. I originally was going to purchase a brand new car, but held back as the monthly payment was WAY too high. I then saw the most beautiful Honda Accord I’ve seen and had to get it. It was selling for only $12,000. I took my chances and purchased this vehicle.
What I failed to do at the time was look at the fine print. My monthly payments were $398 per month…for a 48-month term! That means I will be paying an additional $7000 in interest alone during the duration of the loan. That is insane! Luckily the car is still running to this day (I have a much better luxury car now as my main), but I would NEVER recommend getting a sub-prime auto loan unless you intend to pay it back within a year to minimize the financial damage/loss.
Financial Mistake #2 – Auto Title Loan
If you ever need money in a crunch, do not, I repeat, do NOT get an auto title loan. I had an emergency financial situation come up where I needed a large lump sum of money. I discovered a title loan place nearby and decided to take my chances. While I didn’t have the best car and my credit was not the best, I was able to get a $1000 loan. This loan was then tied to my vehicle, meaning if I default on my loan, they can literally take my car. I was confident I would be able to pay it back in no time.
Little did I know, the monthly payments were basically INTEREST ONLY! I was paying dang near $100 a month thinking I was making a dent in the total amount. The principal was basically unchanged! This was alarming and scary as I didn’t have much money to spend on bringing down the principle after making the payments (was a “broke college student” at the time). Luckily in my case, I ended up doing a side gig and paid off the account in 3 months. Had it not been for that side gig, I would have surely had my car repossessed by this company based on their Yelp reviews. Stay away from Auto Title Loans!
Financial Mistake #3 – Credit Card Debt
When you get your first taste of credit, you try to tell yourself to use it only for essential items. If you’re young or not financially well off, this rarely ever happens. When put in use, you will use it like cash even at times when you technically have the money to cover the expense in your bank account. Then you make the minimum payment on your card, which doesn’t’ nearly cover the amount used for the month. All of a sudden, your credit card is maxed. Then you apply for more credit with a different company or apply for an increase in credit, repeating the same cycle.
Yes, I did just that. I was at a point where my expenses were more than my income, so I needed “bill security”, which for me was credit that can be applied to my monthly bills. I opened up three lines of credit for that particular purpose. The only problem is I seldom used the cards for the intended purpose. I used them for food, snacks, gas and travel expenses. I racked up a ton of credit card debt in only a 6 month timespan! That is very irresponsible and unfortunately all too common. I have sense got my credit card debt below the golden 30% (aiming for under 10%), but try to avoid spending what you don’t have. It’s common sense, but we all at some point neglect credit cards and don’t use them for their original intent.
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Financial Mistake #4 – Student Loans
I know you’re wondering why I included this on here. Well if you’ve done like me, you didn’t handle your loan responsibly. Every year I would be eligible for student loans, but would shy away as I had other funding and felt I could handle the additional expenses. I went back to college after my undergrad as I wanted a different bachelors and applied for a loan. The smart thing to do would be take out what is needed. The wrong way to go about student loans is to take out much more than what you need for educational expenses.
I did this for about 3 years straight and racked up some massive debt. I would always take out an additional $1000 dollars just for what I will call “leisure” and blow it on some fancy electronics or something typically out of my comfortable price range. Why did I do this? I have no idea, but if I could revisit my college days and redo one thing, I would avoid taking out too much money in loans if at all possible. it may not hit you at the time you’re taking the loan out, but it will comeback at you full force!
Financial Mistake #5 – Food
While I had the income of a peasant, I would eat like a king. This is not smart when you’re spread financially thin as is. imagine eating out every day or every other day, buying the non value-menu items and sometimes going to fine dining establishments. This is fine if you’re in a career or have a really good source of income, but for a college level or person who hasn’t quite started earning a great deal of money yet…this can be a MAJOR problem. It’s not just about the cost. Eventually your food pallet becomes so refined that you need that quality of food to be satisfied. This doesn’t come cheap.
I would recommend grocery shopping as much as you can. This will save you a ton and the quality of food you eat only cost time (that is if you buy quality brands). Making food is essentially half to a third of the cost of going out in my case. I was averaging $20 a day on food only when I used to eat out daily (approximately $600 a month). Now I can spend what averages to about $6 a day and still be satisfied. This is a major savings when viewed from any angle. All it cost is additional time.
We All Make Financial Mistakes
At the end of the day, we all make mistakes. We are smart in are chosen fields, focusing on details to grow strengths that will help us in that field. This attention to detail should be applied to your spending/budget as well. It will help you immensely in the long run. If you want to know what it took for me to get out of my financial crisis, check out THIS article showing how I increased my credit score 200 points in under a year. I also have THIS article that explains everything involved in a credit dispute. Lastly, if you want to check your credit at no cost with no hidden fees, visit Credit Sesame. Thank you for visiting The Credit Dojo and have a great day!