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Seven Biggest Money Mistakes
Категория: «Finances » Money Management>» »
Viewed: [207] | Comments: [0] | 2-03-2010, 22:54
Most Common Roadblocks on the Road to Building Wealth
Many Americans will never reach their dreams of building wealth, being financially secure, and being able to retire in comfort. The reason is most often a combination of these seven biggest money mistakes.
1. Having a Thirty-year Mortgage
Where do you find the money to build wealth? Try looking at your mortgage. Millions of Americans think nothing of paying for their home over 30 years, even though the average homeowner ends up paying two-and-a-half times the purchase price of the home by stretching the payments out this long. Having a 15-year mortgage instead of a 30-year mortgage can save you large sums of money and help you build wealth. See page two of this article for examples of how you may be able to save over $100,000 over the life of your mortgage.
2. Giving Control of Your Money to Someone Else
If you're not involved in your day-to-day family finances, you're putting yourself at risk. If you're married and you let your spouse handle all the financial matters, you're at risk if your spouse dies or becomes seriously ill or if you divorce. Know the details of your family's finances, investments, debts, retirement savings, etc. Don't turn your investments and financial affairs over to a broker or financial consultant without keeping abreast of what is being done with your money and being involved in investment decisions. Never give total control of your money to someone else.
3. Not Controlling Spending Leaks
The reason so many people in America are in so much debt is because they dribble their money away in small, barely noticeable amounts. Like drops of water dribbling through the hole in the dike, the loss is barely noticeable, but over time the hole in the dike gets bigger and bigger. By the time the water is gushing through, the damage is done. The same is true with spending leaks. It's a lot easier to plug a small hole than to ignore the drips and look over your shoulder later and see a huge tidal wave of water coming your way in the form of unmanageable debt. If you're ever going to accumulate wealth, you must control spending leaks.
4. Not Setting Goals
If you don't know where you're headed and how you plan to get there, you'll probably never arrive. To accumulate wealth, you need a plan. To be motivated to save money, you need something specific to save for. To succeed in accumulating wealth, write your goals down and visualize them, whether they're a relaxing retirement, a mortgage-free home, or an unforgettable vacation.
5. Incurring Too Much Debt
If you're spending all your money paying interest on credit cards and installment debt, you won't have enough left for savings. When you buy on credit and don't pay the balance off at the end of the month, you end up paying much more for your purchases. A $1200 big-screen TV can end up costing you $2500, but you'll never know it because the true cost is hidden in your credit card payments. Pay cash and stay away from credit card debt if you want to accumulate wealth.
6. Not Saving Enough for Retirement or Starting Too Late
When you're in your 20s and 30s, it's easy to think you have all the time in the world to accumulate wealth and save for retirement. The truth is, you'll have to save a lot less if you start now and give your earnings time to compound. If you're over 40 and you're behind on your retirement savings, you'll have to save much larger sums to ever catch up to where you should be. Start saving early, and save at least 10 to 15% of your income, and you'll be well on your way to accumulating wealth.
7. Cashing Out Retirement Funds
Half of all Americans end up cashing out their 401(k) balances when they change jobs. Still others take out loans against their 401(k) balances, permanently reducing the amount of earnings they would have accumulated. If you want to accumulate wealth, tax-deferred retirement plans like 401(k) plans are a great way to do it, but resist the urge to tap those funds before retirement.
Avoid these seven money mistakes and increase your chances of successfully accumulating wealth.
Examples of Saving Big Money On Your Mortgage
Examples of money savings on 15-year vs 30-year mortgages or making a $100 extra principal payment monthly. For simplicity, these examples do not factor in the tax savings of deductible interest expense, but keep in mind that paying one dollar in interest so you can deduct 25 cents from your taxes still costs you 75 cents. For a more detailed analysis of what you'd save, including the tax benefits, use an online mortgage calculator like those at www.bankrate.com.
Example #1: 30-Year $250,000 Mortgage vs 15-year $250,000 Mortgage
$250,000 mortgage at 7% for 30 years = $1,663 monthly payment
Total interest you pay over 30 years = $348,772
Total amount paid = $598,772 (interest plus principal)
$250,000 mortgage at 7% for 15 years = $2,247 monthly payment ($584/month more)
Total interest you pay over 15 years = $154,473
Interest savings on a 15-year versus 30-year mortgage = $194,299
Example #2: 30-year $250,000 Mortgage With $100 Per Month Extra Principal Payment
$250,000 mortgage at 7% for 30 years = $1,663 monthly payment
$100 extra per month reduces mortgage term by almost five years
Total interest you pay over 30 years = $291,992
Total amount paid = $541,992 (interest plus principal)
Interest savings on a 30-year mortgage with a $100 per month additional principal payment = $56,780
Example #3: 30-year $150,000 Mortgage vs 15-year $150,000 Mortgage
$150,000 mortgage at 7% for 30 years = $997 monthly payment
Total interest you pay over 30 years - $359,263
Total amount paid - $509,263 (interest plus principal)
$150,000 mortgage at 7% for 15 years = $1,348 monthly payment
Total interest you pay over 15 years = $242,683
Total amount paid = $392,683 (interest plus principal)
Interest savings on a 15-year versus 30-year mortgage = $116,580
Example #4: 30-year $150,000 Mortgage With $100 Per Month Extra Principal Payment
$150,000 mortgage at 7% for 30 years = $997 monthly payment
$100 extra per month reduces mortgage term by 7 years and 1 month
Total interest you pay over 30 years = $209,263
Total amount paid = $359,263 (interest and principal)
Interest savings on a 30-year mortgage with a $100 per month additional principal payment = $58,320
Where else will you ever be able to generate this much money towards building the wealth that you dream of?