Don’t Fall into These 5 Money Traps

Published on April 30th, 2014

It is a lot easier to spend money than save it, but hopefully you are able to resist the temptation to overspend. Even those who keep track of every penny spent make mistakes when it comes to finances – here are some common traps we fall into in regards to money.

1. Keeping “special funds:” Do you have a special account or money jar set aside for that new big screen TV or an upcoming vacation, yet still owe money on credit card payments? Did you receive inheritance but refuse to use it to bay back a major loan? It is not uncommon to treat certain money as more special depending on where it came from or where it is going. This isn’t a good idea, as it in most cases causes us to spend money irresponsibly and possibly even put us further in debt. Many people who do this don’t even really realize it, making it a hard habit to kick. Rather than trying to stop this “mental accounting,” use it in a more beneficial way. Create a special fund for an important expense in the future, such as a child’s college fund, or save it for emergencies.

2. Instant gratification: In this day and age, we want what we want, when we want it. Unfortunately this often leaves us unprepared for what is to come in the future. We want to have the nice home, the nice car, and the nice meals out every night now – but what about saving for a wedding, kids and retirement? Splurging in the moment is often caused by excitement or fear, so take a moment to calm down and rationally consider your options. Can you afford this? Will it set you back from something else you may need? Set some short-term and long-term goals, and decide whether certain purchases will affect those goals.

3. Sticking to what you know: It can be scary to make a change, especially when it comes to your hard-earned money. If you have always kept your 401(k) money in one mutual fund, you may not be eager to move it to another, even if it proves to be a better choice. The best way to help you adapt is to turn to a professional who will give their best, unbiased opinion of what should be done.

4.  Lacking self control: You decided to cook dinner at home Friday night to save, but then go shopping with friends Saturday afternoon and pay a hefty price on a pair of shoes. While you may feel good about skipping dinner out, you still gave into temptation the next day. If you are trying to save, skip the shopping trip – you will survive! You can also set up automatic payments toward your 401(k) so that money isn’t even available to spend in the first place.

5. Placing higher value on belongings: If you are trying to sell your home or another significant possession, you may put greater value on it because you own it. If you have lived in a home for many years, raised a family there and have made memories, you will likely believe it to be worth more than it really is. Whether you are selling your home or a vintage collection, have it appraised by a professional to find the true value.



Courtesy of Life Hacker

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