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Money mistakes you can avoid

Yes, we are in difficult economic times. There may be things that set you back financially that are beyond your control. There are also things that can set us back that we bring upon ourselves.

It is very important that we are all careful when it comes to decisions about money. It is particularly important that we don’t make easily avoided mistakes that could wreak financial havoc on our lives.

Some of us find ourselves in a bad situation because we’re generous and try to help someone else. While it is wonderful to be a generous person and to help others, it’s foolish to put yourself in a bad situation to do so.

Here’s an anecdote that illustrates my point:

A good-hearted woman had a friend who needed a car. So, she gave the friend her car. The friend promised to make all of the payments, though the title and paperwork for the car were not transferred into the friend’s name. Unfortunately the friend did not honor his or her promise to make the payments, and the car was repossessed.

Do not get yourself into a situation where you’re on the hook financially and have no legal recourse to protect yourself. I am not a lawyer, therefore I can’t say what steps you need to take, but I know handing over a car for a promise is not a good idea.

I recently read about a woman who lent her daughter a sizeable amount of money. This woman put off her financial goals to help her daughter. The daughter did not repay her, which caused great financial hardship.

In general, making a personal loan to someone without the guarantee of repayment is a risky move, especially if you don’t have a large cushion of savings to fall back on.

Another misstep that could spell trouble is agreeing to co-sign a loan for someone. If you agree to be a co-signer you are agreeing to make payments if the primary borrower doesn’t. You could be putting yourself on the hook for payments you can’t afford.

If someone asks you to be a co-signer, ask a few questions. The first question should be: Why does this person need a co-signer? Sometimes people who are new to the credit world, like recent college graduates, need a co-signer because they don’t have an established credit history. Or, does the person have a poor credit history, and that’s why the lender requires a co-signer?

The second question you should ask yourself is: What is the chance the primary borrower will be able to meet his or her payment obligations? Do the loan payments fit into the borrower’s budget? Does the borrower have steady income?

Co-signing is not something to enter in to lightly.

Here’s a brief list of some other possible financial mistakes to avoid:

·        Buying anything on credit. Try to pay cash for as much as possible.

·        Using “no money down, no interest offers.” While these work for some people, if the interest-free period ends and you haven’t paid for the item in full, you will be responsible for paying all of the interest that accumulated over the term of the offer.

·        Buying on emotion. Anytime you spend money based on feelings and not facts and numbers you can find yourself in trouble. That purchase could be as small as a new outfit or as big as a new house.

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