Dealing with family finances can be both stressful and difficult. In the time that I've been in charge of my family's finances I've learned a few things that helps keep things in prospective. Two of those are; always have a well-planned budget, and lenders don't always have your best interest at heart. Keeping these rules in mind has helped us avoid some common financial traps. Here are three financial traps we've avoided.
Becoming house poor
In late 2011, my husband and I decided it was time to purchase our first home, so we applied for a pre-approved mortgage. Much to our delight we were approved within days, but the amount we were approved for was a little shocking. The home we were interested in purchasing was on the market for $70,000, but the bank approved us for $129,000. I ran the numbers before applying, so I knew we couldn't afford the monthly payments on a mortgage that size. If we had listened to our lender, and purchased a house at the maximum amount allowed, we would have been "house poor." I truly believe we would have defaulted on the loan within the first few years. Luckily, we avoided this trap.
Renovating our home to build equity
When family and friends learn you are buying a home, it's inevitable that they will start offering you advice. One of the most repeated pieces of advice we received was to start renovating our home right away to build equity. While I understand how important it is to improve our home to increase the value, it wasn't something we were prepared to do right away. Instead, we decided to buy a home we could live with as is for a while, and worry about renovation later. To us, it just didn't make financial sense to strain our already stretched budget for potential value later.
Budgeting for today and ignoring the future
I've seen several people start personal budgets only to fail a short time later. The problem most of them encountered is that their budgets weren't well thought out, and they neglected to prepare for the future. When I started our budget I was determined to cover everything from our immediate expenses to things that were coming a year from now. At any given time I can tell you what bills we have to pay one year from now, and where the money for those payments will come from.
Financial traps are everywhere you look. Sometimes the best ideas lead to the biggest financial traps, even if you have the help of a professional. You can avoid falling for these traps too, if you simply spend the time getting to know the ins and outs of your finances, and by doing your homework before making any financial decisions.
*Note: This was written by a Yahoo! contributor. Do you have a personal finance story that you'd like to share? Sign up with the Yahoo! Contributor Network to start publishing your own finance articles.More from this contributor: First Person: We Are Happy With Our Small House
- Personal Budgeting