In my last post, I pointed out money mistakes to avoid. In this post, I’ll tell you how to remedy those mistakes.
- Buying a new car.
- Leasing a car.
- Not maintaining a car.
- Replacing your car before you’ve paid it off.
The remedy for mistakes 1-2 is:
- Buy a pre-owned car (used). Cars depreciate in value the minute you drive them off the lot.
The remedies for mistake 3 are:
- To follow the manufacturer’s recommended maintenance schedule. Preventive maintenance is more cost effective. This prevents the problem from happening.
- Compare the cost of purchased warranties against the cost of repairs.
- If you can and most importantly if you know how, do your own maintenance.
- 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:
- Keep your car after you’ve paid it off.
- Continue making the same car payment amounts to a savings account to prepare for the next car purchase.
- Compare the cost of repairing your current cost against the cost of (purchase price) for the replacement car.
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.
The remedies for mistakes 5-8 are:
- 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.)
- 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
9. Having too many credit cards.
10. Seeking high loan-to-value ratio (cars and houses).
11. Buying too much.
- Minimize/reduce the number of cards you have.
- Seek the best value you can on the cards (rebates, low interest rates, credits, benefits).
- Read the “fine print”.
- Beware the teaser rates.
- Compute the potential monthly payment at credit limit(s) and ensure that your budget supports them.
- Believe this, fewer cards can improve your credit score, as long as you make your payments on time.
- Use the card for only BUDGETED ITEMS.
- PAY OFF YOUR BALANCE at the end of the month or when the bill comes in.
- If you don’t pay it off, CUT IT UP and STOP USING IT.
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.
- Stop borrowing immediately.
- 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.
- Exercise self-control over your wants and desires.
- Make extra money by either getting another job, selling items, or getting a higher-paying job.
- 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.
- Change your focus from what you have and not what you lack.
- 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.
- Receive the same tax deduction by giving instead of paying mortgage or home equity interest.
- 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.
- Give yourself a “raise” by adjusting your income tax withholding downwards, if you received a large tax refund last year.