Remedies for money mistakes

In my last post, I pointed out money mistakes to avoid. In this post, I’ll tell you how to remedy those mistakes.

Mistakes 1-4:

1. Buying a new car.
2. Leasing a car.
3. Not maintaining a car.
4. Replacing your car before you’ve paid it off.

Remedies:

The remedy for mistakes 1-2  is:

1. Buy a pre-owned car (used). Cars depreciate in value the minute you drive them off the lot.

The remedies for mistake 3 are:

1. To follow the manufacturer’s recommended maintenance schedule. Preventive maintenance is more cost effective. This prevents the problem from happening.
2. Compare the cost of purchased warranties against the cost of repairs.
3. If you can and most importantly if you know how, do your own maintenance.
4. Avoid taking your car to the dealer’s repair shop after the warranty has expired. Find a reputable repair shop that will fix your car because they will typically charge you less than the dealers.

The remedies for mistake 4 are:

1. Keep your car after you’ve paid it off.
2. Continue making the same car payment amounts to a savings account to prepare for the next car purchase.
3. Compare the cost of repairing your current cost against the cost of (purchase price) for the replacement car.

Mistakes 5-8:

5. Giving into impulsive purchases.
6. Spending without a budget.
7. Making hasty decisions when purchasing items, especially large ticket items.
8.Buying something new before selling the old item.

Remedies:

The remedies for mistakes 5-8 are:

1. Stop discretionary spending until you have established a budget. (Note: Discretionary spending refers to amounts that are not fixed costs. They are items where you can vary how much you spend on them.)
2. Ask yourself, “What does this really cost me in the long-run?”
   • Include tax, maintenance, interest, fees, etc.
   • Consider your budget and make that you have allocated for the item. If not, don’t buy it.
   • Compare the dollar cost to the work required. Is it going to be worth the time

Mistakes 9-11: 

9. Having too many credit cards.
10. Seeking high loan-to-value ratio (cars and houses).
11. Buying too much.

Remedies:

1. Minimize/reduce the number of cards you have.
2. Seek the best value you can on the cards (rebates, low interest rates, credits, benefits).
3. Read the “fine print”.
4. Beware the teaser rates.
5. Compute the potential monthly payment at credit limit(s) and ensure that your budget supports them.
6. Believe this, fewer cards can improve your credit score, as long as you make your payments on time.
7. Use the card for only BUDGETED ITEMS.
8. PAY OFF YOUR BALANCE at the end of the month or when the bill comes in.
9. If you don’t pay it off, CUT IT UP and STOP USING IT.

Mistakes 12:

12.Having a short-term focus instead of a long-term focus. This leads to:

• Having  insufficient savings.
• Having the wrong understanding of the cost of credit and power of compound interest.
• Failing to develop a debt pay-off plan.

Remedies:

1. Stop borrowing immediately.
2. Develop creative ways to save.
   • Reduce spending.
   • Use coupons, sales, discounts, shop at discount stores, use rebates, shop at thrift stores, don’t replace an item because it’s “out-of-style” or last year’s model, etc.
   • Think yearly–determine the annual cost of small recurring expenses.
3. Exercise self-control over your wants and desires.
4. Make extra money by either getting another job, selling items, or getting a higher-paying job.
5. Develop a well-organized debt repayment plan.
   • Start paying the debt with highest interest.
   • When that is paid-off, roll over that payment into the next highest interest balance.
6. Change your focus from what you have and not what you lack.
7. Understand the true cost of credit.
   • Calculate the total amount you would pay if you financed the purchase (sticker price plus the total interest you’ll have to pay).
   • Calculate the total amount you would earn if you invested the amount you’ll spend over the same term as the loan period or financed term (the power of compounding).
   • Propose to save first and they to buy.
   • Remember “When least is best”.
   • Calculate the monthly cost of credit for purchases/credit card balances.
8. Receive the same tax deduction by giving instead of paying mortgage or home equity interest.
9. Aggressively prepay the mortgage when you have your emergency fund in place; your credit cards are paid-off; your auto, student loans, and all other loans except mortgage are paid-off; you are saving for major purchases; you are saving for retirement; and you are saving for your children’s college.
10. Give yourself a “raise” by adjusting your income tax withholding downwards, if you received a large tax refund last year.