A discussion of some of the essential “dos and don’ts” of avoiding a massive financial reversal.
If you’re like most people, you’ve probably uttered the phrase “if I only knew then what I know now” a few times.
And it’s true – there is no better teacher than first-hand experience. Yet there are some subjects where experience should be avoided at all costs.
Undergoing a life-changing, unmitigated financial disaster certainly qualifies in that regard.
In that vein, let’s discuss some of the essential “dos and don’ts” of avoiding a massive financial reversal.
Do Care Deeply About Your Credit
A good credit score (think 750 or higher) makes life easier on a multitude of levels. It allows you to borrow money when you need it, and to do so without paying exorbitant interest.
Poor credit, however, is both a symptom and a cause of financial distress. The more you fall behind, the worse things get. It’s a self-reinforcing cycle that can be very difficult to escape.
If you want to minimize your odds of suffering a serious financial setback, keeping your credit score high is one of the best steps to take.
Don’t Prioritize The Short-Term Over The Future
This is one of the most fundamental financial mistakes people make – and for good reason. Humans are hardwired to privilege recent events over more distant ones. After all, it’s easy to relate to the person we’ll be when we wake up tomorrow. When we picture ourselves 30 or 40 years from now, it’s much harder to make a connection.
The reality is simple: Our future financial stability depends on the actions we take today. By planning with our long-term interests in mind, we mitigate the possibility of financial catastrophe.
Do Start Saving And Investing Early
The power of compound interest is remarkable. If you set aside just $25 a week starting at age 25 and draw a seven-percent rate, you’ll have just under $50,000 at age 45. By the time you’re 65, that $25 a week will have earned you roughly $239,000.
That’s the power of a long investment timeline. If you’re under 30, saving money for retirement may seem like a low priority. It’s actually the perfect time to start. And if you’re over 30, there’s no better time to start than today.
The money you’ll accumulate is your best defense against financial disaster.
Don’t Operate Without A Safety Net
In 2014, the Financial Industry Regulatory Authority conducted a study. They asked Americans if they could come up with $2,000 in 30 days, to pay for a financial emergency. The results were sobering, to say the least – 39-percent of Americans said no.
Operating without an emergency “rainy day fund” is an easy way to let a financial hurdle become an impassable obstacle. If you’re operating without such a cushion and have few other reserves to draw upon, it’s time to start saving.
Do Resist The Temptations Of Consumer Society
We can’t always overcome our urge to indulge our wants over our needs. But, we can resist the trap of conspicuous consumption.
Spending money may make us feel better in the very short-term, but we achieve sustained health and happiness by cultivating smart financial habits.
Avoiding financial disaster requires the judgment to make the right “big picture” decisions, and the will to put those decisions into practice on a daily basis.
Follow the ideas listed above, and you’ll improve your odds of never having to suffer through a personal financial disaster.