No 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 Old Post Promoter

Related Posts

• The Truth about Credit Cards and Debt pt 2 This is part two to a series on credit cards and where our country is heading when it comes to credit card debt. In the previous post in this series we talked about some of the statistics in the credit industry and how to interpret them to get an idea......
• How to Evaluate Your Financial Risks Whether we realize it or not, many of us face financial risks every single day. From the high powered investor, to the minimum wage earner, every one of us has the potential to lose everything we own. How can you evaluate your financial risks and find ways to secure your......
• What is your Credit Card Costing You? Most people do not put enough thought into how much their credit cards are really costing them. Sure, you may think that you are aware of all of the costs associated with credit, but there are also a number of fees and charges that can go completely unnoticed among consumers......
• Smart Credit Card Debt Credit card debt is a global problem that has led many to the poorhouse. However, with smart management, credit card debt can actually be a good thing. Let’s look at how to have smart credit card debt that will help your finances instead of hurt it. The premise may be......
• Creating a Household Budget With economic times being what they are, even people who have been more casual about their spending are now creating a household budget. A budget should not be seen as a restriction, telling you what you can't spend, but rather as an empowering tool, letting you know what you can......

Related Websites

• Debit or Credit - Can I See Your Cards? If you're like most people in America, you've got at least two pieces of plastic in your wallet courtesy of your favorite bank or credit union. These little plastic tools have all of the power you will give them. Used responsibly, they can open up a whole new world to......
• Five (Okay...Three) Midsummer Goals Recently, I was tagged by Be This Way to share my five financial goals. I have been meaning to update my goals, but never got around to it -- so this is as good a time as any. Here are the five three goals (I stole the idea from This......
• How and When To Build Good Credit Building your credit is something you certainly need to do for your financial future. Interestingly, at a time when most people are at the critical age to build solid credit, is also the time they are prone to destroy it. This crucial time is during your college years and all......
• when financial behavior becomes set in stone Have you ever bought a lottery ticket? Have you ever used a coupon? Have you ever incurred non-mortgage debt? If you haven't ever, will you ever, just to try it? Just to see where it takes you? I have some financial behavior that is set in stone. You do,......
• Baseball Cards Sports Memorabilia -> Autographs, Original -> Baseball-MLB-> Trading Cards Baseball cards have been around for just about as long as the sport has and many of them have turned into very valuable collector items. Whether you are interested in collecting baseball cards from a fan perspective, or you are more......

Online Stores

• Credit, Charge Cards Trading Cards Collectibles

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:

Budget, cars, checkbook, credit card purchases, credit cards, credit rating, department store, economic trouble, financial traps, living paycheck to paycheck, material goods, maxing, Money, paycheck to paycheck, rule of thumb, salary, single one, temptation