Learn from financial mistakes

This was originally published on Monday, December 25 ,2016 in the Pacific Daily News.  Click here to subscribe to the PDN.

Maybe you remember your parents saying that you should learn from their mistakes. It’s not any different when it comes to finances.

Perhaps you have witnessed others make financial mistakes that have led to financial hardships. It’s much easier to avoid financial mistakes if you know what others have gone through. By recognizing your financial behavior in others, you may be able to steer clear of these pitfalls and avoid the hardship that comes with them.

  • Too much house. Are you in the market to buy a home? Be sure to know how much you can spend on the mortgage and insurance before looking at homes. It’d be nice to move into a brand new home with several bathrooms and enough rooms for all. But on the logical side, you may not be financially ready. Instead, a nice fixer-upper may be the solution. Look at homes in your price range. You don’t want to be stuck with a mortgage that restricts you to a slim budget. Purchase a house that you can comfortably afford. Also, remind yourself that the kids will eventually start lives of their own and move out of your house. If you are in a huge home, you’ll have to maintain that empty nest.
  • Upgrading your house. One of our biggest expenses is housing, whether for rent or for a mortgage. When upgrading your house, decide on a budget and stay within that budget. Decide what exactly needs to be urgently upgraded and what can be put off for later. Try setting up a savings account just for the upgrades and avoid taking out a loan.
  • Emergency fund. Job loss, cars breaking down and medical emergencies are just a few things that are never planned. Having money put aside just for the emergencies provides a crucial crutch when things don’t go as planned. Most experts say you should have at least three months of living expenses saved if you are a two-income home. If you are a single-income family, consider five to six months of living expenses. Saving that much money can be difficult, but any money stored away will help.
  • Co-signing a loan. There may be a time when a family member or friend will ask you to help them get a loan by co-signing. Although your intentions are from the heart, know that the debt is now yours. The loan will appear on your credit report. If they don’t make a payment it will directly affect your credit score. If an asset secures the loan and the loan defaults, the asset will be seized and used toward the loan balance. If the sale of the asset isn’t enough to cover the amount of the outstanding balance, the lender can come to you for the remaining balance.
  • Lending money. We want to help those who are close to us when they are in a time of need. If you loan money to a friend or family member, there is a good chance that you may not get your money back. If it becomes habitual, you may have to learn how to say no. There are other ways of helping. Buying a week’s worth of groceries, offering them a job around the house or even helping them find an additional source of income may help more than just lending them money.
  • Not paying your debt. According to NerdWallet, the average American carries about a $15,355 balance on his or her credit card. If the credit card carries 15-percent interest, that can easily be more than $2,000 a year. Reducing the amount of debt will increase your financial security and the amount you have in your bank account. Paying off debt should be one of your top priorities of 2017.

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 moneymattersguam@yahoo.com and read past columns at the Money Matters blog at www.moneymattersguam.wordpress.com

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