Making the Most of Your Finances: Tips to Avoid Common Financial Pitfalls
When it comes to managing your finances and getting the most out of your money, what you avoid can be just as important as what you do. It’s not enough to set aside money from each paycheck and invest it wisely. It is equally important to avoid investment fraud and other scams that could take you away from your hard-earned money.
A little common sense and a little old-fashioned skepticism can go a long way when it comes to managing your investments. Learning about the financial markets and how they work can help you spot potential scammers and keep them out of your money.
Know the current rate
One of the biggest mistakes investors make is chasing higher returns at the expense of safety. Many investors focus solely on the return on their money, without stopping to think about the return on their money.
Risk and reward are closely related, and that is something that no investor can afford to lose sight of. Keeping track of current interest rates is one of the best ways investors can protect themselves.
Once you know how much Treasury bonds, certificates of deposits, and other safe investments pay, you can use that knowledge to evaluate investment offers that come your way. If Treasuries are paying 2 percent and offer you an investment with a return of 6 percent, you can bet that the investment is three times as risky as those government bonds.
Make the right arrangements
One of the biggest dangers of investing occurs when one spouse takes the reins and handles all financial decisions. While there is nothing wrong with one spouse becoming more involved in investment decisions, it is important that the less involved spouse have a basic understanding of how money is handled.
Spouses should talk to each other about their finances, from where the money is invested to which brokerage firms handle the funds. It’s a good idea to list all of your household’s financial assets, from workplace retirement accounts and individual stocks to mutual funds and life insurance policies. Having that information in a place that both spouses can access will provide protection in the event that one spouse dies or becomes disabled.
Neither a lender nor a borrower will be
There’s a reason the Bible includes so many warnings about borrowing and lending money. Those wise people understood the inherent danger of lending money to family and friends. They understood how those loans, made with the best of intentions, can end up destroying families and shattering the trust between great friends.
Lending money can be fraught with danger. If you want to help and have the means, consider giving the money as a gift. If you must make a loan, be sure to document everything from the interest rate to the length of the loan in writing and have the other party sign and date the document.
Committing a loan to a family member is another thing that may seem like a good idea at the time, but it turns out to be quite the opposite. It can be difficult and heartbreaking to turn down an adult child who needs a co-signer to buy a car or lease an apartment. Even so, it is important to be aware of the potential dangers of such a situation.
If you co-sign a loan for a friend or family member, you’ll be in trouble if that person doesn’t make the payments or meet their financial obligations. If you and the other party agree, you should be able to come to a different solution.
If your daughter needs a car but can’t secure financing on her own, you might suggest buying an inexpensive but reliable vehicle while she saves money for a better car. If her son asks you to sign a home loan, she tries to suggest that she look for a lower priced property. Being open and honest is the best way to avoid financial problems and the misunderstandings and resentments that can result.