Personal finance is something that everyone needs to think about. But it’s not much fun for most people. After all, who wants to pinch pennies and pay bills? And there’s so much to worry about.
But the threats to our personal finances are real whether we think about them or not. And if we do spend some time thinking about them, we can counter them with smart practices. Here are three things that can ruin your finances, along with tips for steering clear of disaster.
Debt
Debt is a tricky thing in personal finance (and in finance in general) because it can be either good or bad depending on the circumstances.
Debt can be good, explain experts who offer home loans. A mortgage can help a home buyer acquire a valuable property and get out of the rental market, where monthly rents simply waste money. Of course, the loan needs to be manageable, which is why you should use a home loan calculator to make sure that you’re getting the right deal on a home that you can afford and debt that you can pay back. But the fact remains that this debt can be good and can help people grow their net worth.
So what’s bad debt? Generally speaking, it’s all the things that good debt isn’t. A good loan will help you acquire something valuable, like a home or an education. A bad loan usually won’t. A good loan will have a relatively low-interest rate like a mortgage does. A bad loan will have a high one, like the ones on payday loans.
You need to be careful of debt because it’s too easy for loans and debt to become a cycle. If you take out too much debt, you’ll get buried in interest — and will have to take out more debt just to pay down the interest.
Risky investments
If you want to grow your net worth and retire comfortably, then you’re going to need to invest in the stock market. Investing allows you to harness the power of compound interest and build meaningful wealth that you can live on.
But make no mistake: The stock market is also a place where you can lose everything. If you try risky investment strategies, experts say, don’t be surprised when your decisions come with consequences. In the market, big opportunities also come with big risks. Slow-and-steady investment strategies are safer bets in the long term (especially given the fact that frequent trading will run up your broker commissions and other expenses). Don’t let your eyes get bigger than your savings account. Here’s a better idea: Hire a financial adviser or simply play it safe with index funds and target-date funds.
Fraud
A lot of the dangers to your finances come from within. Your own habits and money mistakes can cost you big-time, and that’s why it’s so important to keep tabs on your decision-making. But make no mistake: Plenty of outside forces are looking to separate you from your hard-earned money.
Just ask attorney Howard Fensterman, who has often led fights against fraudulent business practices and other instances of crooked behavior throughout his career as an attorney who specializes in (among other things) financial malpractice law. The unfortunate truth is that a lot of crooks are out there, and they’ll come at you any way that they can — whether from a position of trust or as a stranger popping up in your email inbox.
So be wary. When you see a deal that looks too good to be true, remember that it probably is. Familiarize yourself with the warning signs of scams and fraud, and be careful about when and how you give out your personal information. These sorts of best practices can make all the difference.
