While no one sets out to make financial decisions that could end up backfiring, the fact is that not every financial decision will have the best outcome in the end. However, if you take time to research the risks associated with financial decisions, you can try to mitigate any potential disasters in the future.
Even sound financial decisions can backfire on the most well-intended plans which makes avoiding common financial mistakes even more important. Make sure to think twice before getting into any of these financial scenarios:
- Giving a loan to a friend or family member – With nearly 50% of people who borrow money from friends or family never actually paying back the loan in full, be prepared to lose money when letting a close friend or family member borrow money. Personal debt from family members has almost reach $300 billion, according to Finder.com, which can cause extreme angst if the lender was dependent on the loan being repaid.
Before loaning any amount of money to a friend or loved one, make sure to evaluate the situation to help you determine if it’s the right choice for your financial needs. Questions to ask before committing to a personal loan for a friend or family member includes:
- Is this for an emergency?
- Can I afford to provide a loan?
- Will this change our relationship if not repaid?
- Why can’t the borrower ask a bank?
Even if you have confidence that the loan will be paid back, make sure to only provide what you can afford to lose.
- Co-signing a loan or adding an authorized user to your credit card – While helping friends through difficult situations is a noble gesture, you are putting your financial well-being in the hands of someone else. If you signed onto someone’s car or home loan and they miss a payment, it is your credit score that will be negatively impacted.
You could also be responsible for paying back any payments that they have failed to meet. By co-signing a loan for someone, you’re also taking on more debt which increases your debt-to-income ratio that affects your ability to receive approval for a loan in the future.
With so many avenues for friends and family to borrow money for, make sure the loan is for a worthwhile cause and not just some run of the mill purchase.
- Financing your child’s college education – College is extremely expensive, and the costs are continuing to rise every year. While helping your child pay for college is honorable and can help them tremendously, you shouldn’t stray from your own financial goals. Students can borrow money for college while banks aren’t giving out retirement loans. Make sure you can afford to pay for your child’s education and your own retirement before committing to pay for your child’s college education.
- Delaying or not saving enough for retirement – Not establishing a retirement account early in your career can have drastic effects on the later stages of your career. Any kind of delay in saving for retirement will typically result in having to work well into your later years. Any person with an established career should already have a retirement portfolio to work with. To help establish or enhance a retirement portfolio, consulting with a financial advisor can help guide your savings into a sound investment strategy for your retirement needs.
When devising a retirement plan, speaking with a financial planner can help ensure you’re able to accomplish your retirement goals. Financial advisors can identify additional investment opportunities to guide your retirement account toward a path of financial stability. By taking time to speak with a financial advisor like Matt Logan on your financial goals, clients can rest easy knowing their retirement funds will be maintained properly.
Matt Logan is experienced with enhancing the financial portfolio of his clients. If you need help managing your finances, don’t hesitate to reach out to Matt Logan to see how he can help improve your financial situation. Give a call today: 336-540-9700.