The Most Common Mistakes That People Make That Lead To Debt

Common Financial Mistakes

The Most Common Mistakes That People Make That Lead To Debt

When it comes to debt, everyone seems to make the same mistake: the lack of thorough planning. Whether it is by ignorance or indulgence, lack of planning is the number one reason people get into debt. Financial experts have discovered two common errors and three common expenses that can lead to this problem.

The two common errors are using credit and making impulsive financial decisions. Many people today make purchases with credit, instead of saving enough money in order to pay cash. The problem with this type of system is that you end up paying 20-100% more than the original price. The second common error is not listening to the wise counsel of the people around you. Many times, a spouse, parent, or friend, can give us financial advice that is different than ours, because they are not emotionally involved in the decision.

The three most common expenses that can lead to debt are a home purchase, a car purchase, or an unplanned emergency. The percentage of an average family's budget that should be spent on a house payment is no more than 25 percent of net spendable income. Unfortunately, many couples commit to as much as 60 percent or more of their budget to housing. A new car debt is harder to deal with than overspending on a home. Most homes can be sold at or above their original purchase price. However, when it comes to automobile debt, many people can actually owe more on a car than it is worth. Failure to plan for automobile repairs, emergency home repairs, or personal injury is the third most common expense that leads to debt. Most people fail to anticipate these expenses, because they do not know how to budget for them.

Without some kind of written financial plan (budget) families will not realize that they have a financial problem, until it is too late. A budget balances income and expenses. By maintaining a budget, couples can identify the holes in their financial plan, to avoid errors and expenses that lead to unmanageable debt.

In the next couple of weeks, I will send you three emails that break the budgeting process down into three simple steps: developing a financial profile, developing a financial plan, and how to stay on your financial plan.

I am only offering this for a short time, in preparation for the series "Strapped," starting at Abundant Life Community Church on Sunday, October 5th at 10:30am.