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MOST COMMON MONEY PITS- MEDIUM RISK
MOST COMMON MONEY PITS- MEDIUM RISK
There are basic money pits that we should avoid.Most of these pits are interlinked and related.
Examples include:
1. Immediate gratification
2. Unbudgeted spending
3. Freebies
4. Lack of planning
5. Buying luxurious vintage items
THE MOST COMMON MONEY PITS
IMMEDIATE GRATIFICATION
This is a process of satisfying a want now. For example, a person may want a pair of branded trainers. They may not have the money to buy them. They end up either buying them on credit or borrowing to buy, simply because they want to satisfy the want now.
IMMEDIATE GRATIFICATION
IMMEDIATE GRATIFICATION
To avoid this pit, the person must be able to delay the purchase and save for the trainers and only buy them when they have saved enough money. Alternatively, they can take up lay-bye options with participating stores. Lay-bye involves paying a small deposit for the goods to be purchased and make subsequent payments over an agreed period. The provider holds the goods until the buyer has paid in full. Lay-byes usually attract very little or no interest at all.
Some people do not keep track of what they spend their money on. They spend on anything they love without checking if their income would be able to meet their next need. Very often they fail to make ends meet as they would have to borrow to get to the next month. Unbudgeted spending often leads to impulse buying, that is, buying things that we do not necessarily need.
To avoid this pitfall, one must budget one’s money. Budgeting also allows us to assess the list of items that we can spend money on now and those that we can buy later.
UNBUDGETED SPENDING
HUGE DEBTS
Debt is an impediment to financial independence and growth. It may lead to bankruptcy because of failing to pay debts. Some people may end up borrowing more to service the current debt and in the process getting more and more into debt.
To avoid this pitfall, one needs to avoid unnecessary borrowing. One way of doing it is to avoid buying things on credit unnecessarily. Saving for the desired purchase as explained above is a good idea.
HUGE DEBTS
If one decides to use debt to buy a capital item such as a car, one needs to be careful of not buying the most expensive car that the bank says they can afford. One needs to make sure that after paying for the car instalments and services, they are still left with enough money to save.
FREEBIES
Free things are not always free. They usually come with some baggage. For example, some are designed for hooking people into long term contracts.
LACK OF PLANNING
LACK OF PLANNING
Lack of planning may be a stumbling block to economic independence. Some people do well at budgeting but fail to incorporate planning for the future in their budgets.
One way of doing this is to put aside a certain amount of money into a savings account. The general rule is to save 10% of your income on a regular basis. These savings may come in handy on a rainy day. Most people resort to borrowing in times of crisis because of living from hand to mouth.
Having a pension fund is also another way of planning for the future. You do not want to spend all your earnings now and be a destitute when you retire. The rule of thumb in planning is not to spend all your income now but to save some for the future.
BUYING LUXURIOUS VINTAGE ITEMS
While old luxurious items,for example cars may come at a cheaper price, the cost of replacing the car parts may end up being higher than the value of the car. Usually the replacement parts of old vehicles are priced at the same price as those of new ones. Repairing these cars may also require a very highly qualified mechanics and they often do not come cheap. As the cars gets older, the costs or repairing them get higher and higher.
BUYING LUXURIOUS VINTAGE ITEMS
BUYING LUXURIOUS VINTAGE ITEMS
Apart from the high costs in repairs, the fuel and oil consumption of these cars increase as they grow older and older. Thus, the maintenance cost bill will go through the roof.
It is better to buy a demo entry level vehicle. The instalment and running costs will not be as high as those of an old luxurious vehicle. Most new or near to new cars come with a motor plan.