Recently, the United States has seen a sharp rise in consumer spending, housing prices, and household debt, only to see it all collapse in 2008 with the Great Recession. In the wake of the financial and housing melt down many Americans are living in houses that are underwater with mounds of credits card debt. While few Americans were able to foresee the damage that was going to ensue from the financial collapse, there were widespread personal finance mistakes made by many Americans that could have been avoided.
One of the biggest finance blunders that people can make is not making a budget and sticking to it. While it is not necessary to create a budget that is down to the penny. It is important to have an idea of what kind of money you will have to lay out weekly, monthly, and yearly. Good ways to start a budget is by writing down all of your regular monthly bills, your annual bills, and track your everyday expenditures for one month. The beauty of a budget is that not only does it track spending, but it helps curb it. It really makes you think about your purchases and whether or not they are necessary.
While keeping a budget is one the best way you can track your spending, one of the easiest ways to lose track of it, is by using credit cards for everyday purchases. The perils of using a credit card for minor expenditures are that it’s hard to keep track of purchases and they add up quickly. Swiping plastic as opposed to using cash makes it easier to spend frivolously, as it is easier to quantify money that is in your hand versus using a card. To avoid falling into the credit card debt trap, use your credit card for planned purchases and pay the balance off every month, or at least don’t continue to use it until the balance is paid off.
For many years, it seemed that the unspoken American consumer motto was, “bigger is better”. Unfortunately, many Americans practiced this motto when it came to their home purchases. They overextended their credit to purchase large homes with little to put down. Not only did Americans buy homes with little or no down payments that left them with little or no equity, if they did have equity in their homes they drained it for spending or to help pay down their other debts. It is extremely important that when buying a home that you stay within an affordable price range and that you have at 20% to put down. This will help ensure that you have equity in your home in case of emergencies or falling home prices.
While America is slowly recovering from the Great Recession there are many precautions you can take to safe guard your personal finances. Keeping a budget is the best way to track spending and ensure that you aren’t overExtending your finances. While credit cards can be a great way to build credit, they can lead to a host of problems if used frivolously. Keep track of using credit cards by planning monthly purchases. Lastly, when purchasing a home, it is important to stick to what is affordable and have a large down payment. If you incorporate these rules, along with responsible spending you should be able to safely avoid foreseeable major financial issues.