Make These Mistakes and You’ll Go Broke

A lack of financial resources is a significant cause of stress. There are many factors that contribute to a small bank account. The most basic cause is outspending your income. No one can spend more than they make indefinitely. Sooner or later, the money runs out.

Several mistakes contribute to financial challenges. Luckily, a few changes in habits can get your finances back in the black.

Do you make these errors?

    1. Neglect to pay yourself first. One cause of being broke is the failure to save consistently. Many make the mistake of paying everyone else first with the intention of saving whatever is left over. There’s never anything left over with this strategy. Pay yourself first and then worry about your bills.

    2. No emergency fund. Without an emergency fund, your finances can take a serious tumble. You’ll be forced to use credit cards, dip into your retirement accounts, or skip paying some of your bills in order to pay for the surprise expense. All are serious setbacks to your finances.

    3. Fail to consider the long-term ramification of your choices. People that overspend are often focused on their short-term pleasure. Make financial decisions with a long-term focus and you’ll find your wealth growing year by year.
       
    4. Lack the necessary knowledge. Math, science, and English might be required in high school, but a personal finance class is rarely required. Unless your parents were financially responsible and took the time to share their wisdom, you’re on your own. Buy a few books or research online and begin to educate yourself.

    5. Avoid using a budget. Even millionaires can go broke without a budget. Sit down and create a reasonable budget that allows you to save at least 10% of your net pay.

    6. Spend money on “wants” instead of needs. We’d all like a sports car or a 70” TV, but these aren’t responsible purchases for most of us. Try spending your money on a stock, bond, or mutual fund. Most assets lose money quickly. As much as possible, limit your spending to needs rather than wants.

    7. You’re stuck. If you’re in a challenging financial situation, it’s easy to feel hopeless and stuck. Taking action becomes difficult. Getting yourself out of a financial hole can take time, but it’s doable. Get help from an expert if you need to.

    8. Overspend on your housing and transportation. It’s easy to make the mistake of purchasing as much home as your finances will allow. The same goes for that new car. However, it’s important to keep these expenses under control.

    9. Excessive use of credit. Using debt to purchase a home or pay for college can be a reasonable use of debt. Most other uses are toxic to your finances. You ultimately have to pay for an item or service, plus interest, when you use debt to make the purchase. Dealing with debt is like running against the wind. It makes everything harder.

    10. Spend more than you make. This is the core reason for a lack of wealth. You can never run out of money if you spend less than you make. Our society encourages unnecessary expenditures. Have the discipline to spend less that you earn.

Being broke is common. The only way to avoid being broke is to save regularly and spend less than you earn. Begin today to save at least 1% of your paycheck. Resolve not to use your credit cards. Keep increasing the amount you save each month and look to the future. You can live a life of financial abundance.

Choosing the Right Mortgage Provider for You

Financing a home is a decision that will most likely affect your budget over the next thirty years. Many homeowners focus on finding the right property or comparing different types of loans, but pay very little attention to which lender they borrow from.

Choosing the right mortgage provider can help you save money and avoid any stress that could be caused by poor customer service or billing errors.

There are a few things to be aware of if you are looking for a mortgage:

    1. Some real estate agencies work with lenders. This option might seem convenient at first, but it’s important to understand that the lender and the real estate agency benefit from working together and might not provide you with the best financing option.

    2. There are many affordable online mortgage providers. These services claim they can offer lower fees and rates because they save money by operating online. Rather than just believing their statements on face value, consider mortgage providers with regular, physical locations as well. Plus, it’s a good idea to see if they have good customer service.

    3. Some companies are actually mortgage brokers and not mortgage providers. Pay attention to how a company describes its services and look at the terms of the loan you’re interested in to find out whom you’re actually borrowing money from.

Do not fill out an application until you know more about the reputation of a mortgage provider.

Follow these steps to find a reliable lender:

    1. Ask friends, relatives, or your coworkers for a referral if you know someone who recently financed a home. You can also get referrals from realtors, accountants, attorneys, and other professionals.

    2. Check the local Chamber of Commerce and Better Business Bureau. This is a good way to find out about complaints filed against a lender.

    3. Look for online reviews. Try to find reviews from several sources to get a more accurate idea of the quality of the services offered.

    4. Read the lender’s official website. A reliable mortgage provider should have a detailed mission statement, a list of the services offered, contact information, and a history of their company.

    5. Call the mortgage providers you’re interested in. Ask them a few questions about their loans and policies. A reliable lender will take the time to answer all your questions without pressuring you into applying for a mortgage. They will ask questions about your finances and your ability to make monthly payments to help you select the best financing option.

The best way to compare mortgage providers and loans is to ask for a Good Faith Estimate. This document provides you with all the relevant information about the loan you’re interested in, including the interest rate, credit check fees, closing costs, property insurance rates, taxes, attorney fees, and the amount of your monthly payments.

Taxes and insurance are usually the same from one lender to another, but comparing interest rates and other fees will help you find a financing option that is a good match for your budget. A reliable lender will provide you with this document right away.

Select a lender that offers a loan that will help you meet your financial goals. For example, you might like a financing option that makes it possible to have your home paid off within a certain number of years. You could also look for a loan with monthly payments that don’t exceed a specific amount.

Once you’ve found financing options that match your goals, focus on comparing the reputation of the lender and the quality of their customer service. Taking the time to compare lenders is important, since borrowing from an unreliable company could result in additional costs and a lot of stress in your future.

How to Free Yourself From Behavioral Finance Biases

Behavioral finance biases are untrue preconceived notions regarding current or potential investments that can seriously limit your investing success. It’s not easy to recognize that you have these biases and changing your beliefs can be a challenging task.

However, it’s worth the time and effort to learn to put your biases aside when making investing decisions. This way, your investment choices can be based on effective research and an understanding of the true risk of the investment.

Use these tips to make wise investment decisions by removing the beliefs that are limiting you:

    1. Recognize if biases are affecting your perspective. Recognizing the issue is always the first and most necessary step.

    2. Consider the situation in which the bias occurred. Do you want to know a great way to become extremely successful? Try not to repeat your mistakes.
        • Avoid making the same mistakes again by fully recognizing and analyzing the situation in which they occurred.
        • We tend to behave the same ways in the same situations until we make a concerted effort to change.

    3. Realize the harm the bias caused. Consider what the bias has cost you in the past. What likely result would you incur if you continued to operate under the same belief?
        • Understand the negative consequences of allowing behavioral finance biases to continue to taint your decisions.

    4. Decide how you can do better the next time. What do you need to change? How can you prevent the same error from happening again?
        • Develop a plan that will allow you to work around your natural tendencies.
        • These tendencies are simply a result of human nature.
        • Be diligent in order to do better the next time around.

    5. Create a new routine. Make a new routine that will eliminate your bias. Develop a series of questions that will make it clear if you’re being affected by a bias. Questions are a great way to change your focus.
        • For example, if you are challenged by Herd Behavior (always going along with the crowd), ask yourself why you’re interested in a new investment. Do you really understand the investment? Would you still invest if it weren’t so popular?

    6. Think about the advantages of not being influenced by the biases. You’ve considered the negative consequences of keeping the biases. Now, consider the advantage of changing your perspective.
        • New behaviors are easier to implement if the advantages of changing are clear.

    7. Continuously monitor your thoughts and decisions regarding your finances. Diligence is the key. Always review your decisions to see how they’re affecting your investments.
        • Behaviors and thought patterns can take time to change, and some may be harder to stop than others.
        • Monitor yourself and you’ll surely overcome these biases.

    8. Continue to work through this process. Continuous working on overcoming these biases is a great way to keep you from backsliding. It’s okay to ask yourself, “How can I do even better the next time?”
        • Remember that you can always get better with everything that you do.
        • Avoid becoming satisfied too easily.

Removing behavioral finance biases is something that should be undertaken by nearly all investors. The quality of your investments is directly correlated with the quality of your decision-making. The various biases simply reduce the quality of your decision-making and negatively impact your investment outcomes.

Take the time to learn more about behavioral finance biases and monitor your approach to your investments. Change your approach if necessary. You’ll be rewarded with better returns and greater success.