The biggest contributor to personal peace is financial peace, how to have financial peace?
It is sometimes believed that only those who have infinite wealth have financial security. In fact, you can be financially secure at almost any income level. The first step is to avoid common financial mistakes.
This article discusses some of the mistakes that many of us make and how to avoid them.
I'm too young to settle down
Not investing in a home or buying too late in life is a mistake that most people make. The reason for this financial error is shown in the following example. Let's say Britney earns 60,000 per year, is single, and rents a house for 2,000 per month. When it comes to taxation, there is little or nothing in the way of deductions. In 2005, they must pay 11,665 in federal taxes.
Had he paid the same rent instead of mortgaged and bought a 315,000 house with a 30-year fixed rate of 6.5%, his mortgage interest would have been reduced by $20,236, saving him 5,059 in taxes in 2005.
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Tax savings aren't the only reason to buy a home. The second reason is the investment they show. Brittany bought a house in January 2005 for 315,000 and in one year its value increased by 5%. A 5% increase in value would give him $15,750 in equity by 2006 and he would have theoretically paid $3,657. Let's add it.
Money saved on rent, $24,000 + taxes saved, $5,059 + equity earned, $15,750 + principle purchased, $3,657 - interest paid, $20,236 = $28,230 saved, or 2,352 home purchases per month. Although she makes $1,000 a month in maintenance, she saved $1,300 a month by buying a house in 2005.
But it was in the sale!
Accumulating debt instead of saving is the next financial mistake that can be avoided. Unless a loan guarantees you future returns, such as an investment in a business, education, or your home, it is best to avoid it altogether.
Buying a vehicle with cash is also financially sound in the long run. For example, consider a family that has $10,000 left on its credit card. Assuming an interest rate of 15%, if they pay 150.00 per month on the card and nothing else is added to it, their total interest and principal before the card is issued is $21,635. It would take them over 12 years to pay at this rate. They are paying $80 interest per month for the "privilege" of credit card debt.
The picture of debt is different. Debt is not just a one-way street. If they don't pay $150 per month for their credit card, they can put it in a savings account. Putting $150 a month into savings account with a 4% monthly compounding return for 12 years would be about $28,000, which is theoretically JAM 21,600 and JAM 6,400 plus interest. So now the actual value of the credit card is interest paid, $11,635 + interest before the savings account, 6,400 = $18,035 loss of money over 12 years or $125 per month.
Do you accept my visa for a mortgage payment?
Lack of liquid savings is another area that can hurt you financially. 3-6 months is the minimum amount to save on the cost of living. This will help cover income loss or potential medical emergencies. This money should only be used for major emergencies and not for things like holidays or weddings, once established liquid savings should be saved in other accounts. When short-term savings are not available, the risk of bankruptcy increases. The new bankruptcy law is making it harder to get out of debt.
Liquid savings are especially important when you have a large income that is not standardized across the industry or when the work you are doing is not in high demand. In this situation, finding a new job with a similar income can be difficult. This can make you vulnerable to hasty decisions which may cost you financially for years to come. For example, I have a friend who has been making decent money in a software company for more than 20 years.
His income was very high as he was in the company for a long time. Eventually, the company was bought and closed. She and her family completed the construction and decoration of their dream home. While he did not have large debts, he did not have any liquid savings. To pay for their house, they sold their house for too low, emptied their 401(k), and both had to take low-paying jobs. Now, eight years later, they are starting to grow out of it, but without their dream home or retirement account.
Natural disasters... here?
Lack of insurance is a mistake that many people make who will not be affected by a natural disaster. In this case, insurance is your best protection against financial ruin. The first step is to sit down and talk to an insurance agent. Make sure the things you care about are covered in the policy.
Set aside money for deductibles in the policy in case of a calamity. Other things to prepare for a disaster include not working for several weeks or months, high medical bills, or living without an automobile in the event of a disaster. The solution to these problems is fluid saving. Remember, just because a house or vehicle doesn't exist doesn't mean they're out of payment.
I have a lot of time to save
Not saving for retirement is a mistake that is often made. If you save, there's a good chance it won't be enough to retire. Findings from the Employee Benefits Research Institute's 2006 Retirement Confidence Survey suggest that many American workers are unprepared for retirement and will have to work longer hours than expected. For example, Jane is 55 years old and currently earns 60,000.
She is expected to retire at age 65 and has already withdrawn $250,000. By the time she retires, her house will be paid for and she believes she can live with 70% of her current income, or $42,000. If she is 90 years old, she will need income till age 25. Let's say her $250,000 increases by 7% and 6% by retirement when she starts withdrawing. We also have to account for inflation which averages 3% per annum.
At age 65, he would need $1,151,243 to keep $42,000 a year in his retirement account for 25 years. That is, they will have to contribute $ 58,919 every year for the next 10 years to achieve this goal. Obviously, this would not be possible. All he can do is push his retirement back to age 75 and save about $10,000 per year by then. His retirement age is not expected to be 65 years.
This is just the beginning of the road to economic peace. Learning more about different investment avenues is the first step to avoiding problems in the future. No one can stop you from making these mistakes. It may take some time to change your habits and actions, but if you do, it will pay off in the long run.
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