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.
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Originally posted 2008-08-20 05:56:32. Republished by Blog Post Promoter
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One key to avoiding issues like those stated in the article is to prepare, maintain, and continually keep an eye on your spending budget. Budgeting is one way to make sure that you are living within your means. If you establish a budget for your income and expenses at the start of the year, you’ll have a road map and plan for living within your means for the year.
Of course, it becomes important to keep the budget up-to-date, but there are many financial programs available online to help you do this.
If you plan your spending in advance, making sure that it is within your level of income, then you’ll have specific targets to follow during the year. Another key benefit of tracking your spending is that at the end of the year you’ll have the answer to that perennial question, “Where did all my money go?”
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