How to Avoid the Three Worst Financial Traps

trapNo matter how wealthy or poor you are, there are financial traps that are waiting to disrupt your lives. Many people end up finding out too late that they are in the depths of one and it is nearly impossible to get out. However, there are specific steps that you can take to ensure that you don't fall into one of these financial traps. We'll cover the three most common traps and the steps you can take to avoid them.

1. Maxing out far too many credit cards.

When you're first starting out, you get one card and soon the offers come in for more. Before you know it, you've got five credit cards and you're dealing with a lot of temptation. One of the worst financial traps that you can fall into is accepting all of these cards and then maxing every single one out. This can have a terrible effect on your credit rating.

How to Avoid This: You really only need one or two credit cards at most, perhaps one department store card and one gas card. Anything over that is superfluous. When you open these cards, the key is not to look at the available balance on the card, but the available balance in your checkbook. Control your spending and pay them off each month.

2. Spending more than you earn.

Many of us don't actually realize that we're doing this, but it is one of the number one problems facing Americans today. Through credit card purchases, homes, cars and other material goods, we end up far into debt before we even realize that anything went wrong.

How to Avoid This: Use the old rule of thumb when calculating what you need to buy. For example, for a house, you should multiply your current monthly salary by three. That will be your price range. For everything else, set a budget and stick to it. It's not always easy, but you'll feel a lot better when you have money to spare at the end of every month.

3. Relying on one source of income.

Too many Americans are living paycheck to paycheck and this spells big economic trouble. Whether it's due to overspending or just a salary that is too low, this is a bad situation for anyone to be in. If you lose your job, everything else goes down hill very quickly.

How to Avoid This: Find ways to either increase your monthly income, by getting a raise or a better paying job, or start creating more than one stream of income. This is ideal and will provide you with the most financial freedom. Whether it is through a side business, your own company or investment returns, a secondary or tertiary stream of income will ensure that you are free from the shackles of your regular paycheck.

All three of these financial traps have a lot in common. They are all related to the amount of money you have coming in, versus the amount going out. Remember, the key to financial freedom is more than one form of income and never spending more than you make.

Photo Credits: 1

Originally posted 2008-08-20 05:56:32. Republished by Blog Post Promoter

Blog Traffic Exchange Related Posts
  • creditreportThe Meaning of a Credit Score I do not suppose you know what your credit score means do you? Do you really? I think you might want to take another moment to think good and hard on that, because in September of 2004, the Consumer Federation of America reported that of one thousand Americans they surveyed,......
  • traumaHow to Undo The Results of Financial Trauma Whether you’ve lost your home or your job, or your money management skills over the years have left you severely in the hole, it is never to early to start turning things around. You can bounce back from financial trauma, but it will take some effort and dedication on your......
  • downThe Dos and Donts of Credit Scores Pt 2 In an earlier post we talked about the Do's for good credit, so now it's time to consider the Don'ts! A credit score is a really important indicator on how likely you will be to default on a credit card or a loan. Your credit score is determined by a......
  • leaderYour Credit Score Affects Your Reputation Reputation is a measure that all of us have. It is the assumption that others have about you and your honesty, punctuality, value of your word, what your values are, and so on. These are habits that everyone has, and these habits apply to the way you handle your money.......
  • chasecreditThese Things are Hurting your Credit Score A person's credit score has become very important in this day and age. Your score is what creditors and lenders look at to quickly decide if you are a good or bad risk to lend credit to. It is important that you learn what types of actions hurt your score......
Blog Traffic Exchange Related Websites
  • credit-scoreHow to Raise Your Credit Score by 150 Points or More in the Next 30 Days Every 30 days creditors will report up-to-date information about your account to the three major credit bureaus like clock-work. So by taking a few simple steps, you can dramatically increase your credit score in just one month. Each of the seven actions that I am going to suggest will take......
  • Kevin GillettFinovate Startup 2009 Live Twitter I am attending Finovate Startup 2009. It is an action packed 1 day format which I belive will lend itself perfectly to a live twitter. Stay tuned it should be an amazing day. http://twitter.com/BlogTrafficExch In the break I have scheduled some talks with SimplFi, Mint, and Calendar Budget. I am......
  • Credit Card ReaderThe Benefits of a Credit Card with a Low Spending/Credit Limit Have you ever wanted to buy that certain something from the Internet, but hesitated because you were fearful of having your credit card number stolen? How about that post transaction anxiety you felt after giving away your credit card information over the phone? Are you 100 percent certain the person......
  • blog traffic exchangeAnalyzing our credit scores We refinanced our house several months back to get a lower rate, which meant that the new mortgage holder eventually sent us a copy of our credit scores. So, I can now say that as of 7 months ago, our credit scores were in great shape. (I see no point......
  • blog traffic exchangeTest Your Credit IQ By Taking This Quiz. For those of you looking to see just how much you know about credit, you should take this quiz from Credit Karma. A good credit score can save you thousands of dollars on a loan, but many consumers don’t know what makes up that three digit number or have any......
Online Stores If you liked this article, vote for it on del.icio.us and stumbleupon.


Categories:

Debt, Income Streams, Money, Personal Finance, bad debt, credit cards, credit score



Tags:

, , , , , , , , , , , , , , , , ,


0 comments ↓

There are no comments yet...Kick things off by filling out the form below.

Leave a Comment

Email Updates

amount of money bad debt banks Budget cash money credit card credit card debt credit cards credit history creditors credit rating credit report credit score debts economy emergencies emergency fund enough money financial future frugal tips how much money insurance interest rate interest rates investments investors job lenders little bit living paycheck to paycheck loans Money money life multiple streams of income paycheck paycheck to paycheck Personal Finance premise retirement risk saving money savings account stock market Stocks streams of income