Five Bad Financial Decisions Low-Income Families Make
Whether you rely on government assistance for help paying some bills or putting food on the table or your simply struggling to get by on a low-income, making your money last longer is important. When you don’t have a lot of money it’s easy to make mistakes with the money you do have. Here are five of the most common mistakes low-income families make. If you avoid even one or two, you may just find you have a little more wiggle room in your budget:
Mistake #1: Not Saving.
When you don’t have a lot of extra cash, it feels impossible to set any aside. But, starting a savings account is essential, especially if you have a small income. Having a little cash set aside will help you avoid debt and give you a little cushion if an emergency comes up. If you are paying off debt, consider making minimum payments a few times and put a little extra money aside before you start focusing on paying off debt.
Mistake #2: Using credit cards.
If you don’t have enough money to pay cash for something, don’t get it. Many times low-income families take out credit cards to help cover their bills or to make fun purchases. The interest rate stacks up quickly and you could spend years paying back that debt. Instead, make a budget and cut out unnecessary purchases until you have a little extra to spend.
Mistake #3: Payday loans.
It’s hard to find a financial error that’s more detrimental than credit cards, but payday loans win out. The ultra-high interest rates and APRs are dangerous. You’ll spend a lot of cash paying off these legalized loan-sharks. You’d be much better off taking out a personal loan at the bank or getting financial assistance from welfare.
Mistake #4: Going into debt instead of investing
It’s generally accepted that debt is bad. And in general, it is. Racking up credit cards to pay for dinners out, new clothes, shoes and fancy vacations is irresponsible. Investing in your future via a home loan or student loan is an investment. If you are going to take out a loan or any other form of debt, make sure it’s an investment. And by the way, a new care is not an investment. Pay cash for cars, clothing and other items because they depreciate and they offer no future earnings.
Mistake #5: Not saving for Retirement.
One of the biggest mistakes you can make is not investing in your retirement. You should invest in your future while you still have a job. It’s much easier to save a little bit while you are young than wait until you are older to set aside larger chunks of money. If you begin putting money aside in a retirement fund now, you’ll have more interest-earning years to really stock up on cash for your golden age.
Along the same lines: do not take money out of your retirement account. Not only are you taking away from your retirement, but you’ll have to pay taxes and may have to pay a penalty for early withdraws.
Category: Family Finances
