This was originally published on Monday, December 19 ,2016 in the Pacific Daily News. Click here to subscribe to the PDN.
It goes without saying that money is of the utmost importance and, if not dealt with in the right way, could land you in a bad financial situation. What you are today and where you want to be tomorrow are the results of all the financial choices you have made in the past.
The good news is that you can prevent most of these mistakes if you are aware of them. Here are some more common mistakes made:
- Your mortgage length. The most common mortgage term is 30 years. Many new home owners settle for the 30-year mortgage because the upfront costs are lower. But take some time and really look at your mortgage contract. If you purchased your house with a 30-year mortgage for $250,000 at 8 percent, the total amount you will be paying is $660,000. That is a difference of $410,000 that goes directly to your lender. If you can refinance your home to take advantage of low interest rates, do so, and take a 15-year mortgage instead. If you can’t afford to make higher payments with the 15-year mortgage, try paying half your mortgage every two weeks. At the end of the year you will have made 13 payments instead of 12. By doing this, you can pay your mortgage five to 10 years earlier and save $100,000 or more, depending on your interest rate.
- Automatic payments. Let’s face it, life is hectic enough. You don’t need to run to the bank to deposit paychecks or run errands at lunch time to pay bills. By automating your finances, you can save time, fuel and the expenses of late fees if you forget to pay your bill on time. Create an automatic payroll deduction with your employer to your checking or savings account so that you ensure you are paid first. Financial institutions make it easy to pay bills or credit cards on line with their online bill-paying services.
- Not monitoring your credit score/report. Your credit score and report are important because these two items essentially tell potential lenders how well you handle your money. If you are purchasing a home, your credit rating is considered in determining your loan interest rate, and the difference between a poor credit rating and a good rating can be enormous. With a good score, you are offered lower interest rates, which in the end can save you thousands of dollars and sometimes even hundreds of thousands of dollars. Future employers can also look at your score and use it to determine how dependable you are. To keep a good score, pay your credit cards and other debts on time. A good rule of thumb is to use 10 percent to 30 percent of the credit available to you. Check your credit report and score for free three times a year and dispute any odd accounts or mistakes on your report.
- Not having a will or trust. We never want to think about passing, but not having a will or trust can cause some serious financial issues for your loved ones. Even though you feel that you do not have enough assets or money to pass on, what you do have should stay with your family. A will or trust can also plan for the care of your children upon your death. If a guardian is not named, the state will have to decide who will provide care for your children. Protect your family and your estate by having a will or a trust.
- Life insurance. Life insurance can assist your family members in covering the cost of your funeral expenses and pay other bills long after you are gone. Not only should you be covered, so should every member of your family. Funerals are expensive no matter how old you are. Life insurance can also help pay for medical bills that may be left behind.
Michael Camacho is president and chief executive officer of Personal Finance Center. He has more than 20 years of experience in retail banking and at financial institutions in Guam and Hawaii. If there is a topic you’d like Michael to cover, please email him at email@example.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com