Financial Problems Everyone Runs Into: Part 1

Throughout life, you'll probably hear loads of unwarranted advice on every subject from your career goals to your love life. You'll also find yourself picking up some recommendations about how to manage your money.

It's important to have a plan for your hard-earned income. Without some ground rules about spending and saving, you may find yourself making unnecessary or expensive purchases, without any money stowed away in case an emergency were to occur.

The advice you've gotten over the years has probably shaped how you spend and save your money. It also may have influenced the way you conduct your life.

While some of these words of wisdom may be in your best interest, it's also valuable to know that you can pick and choose which rules apply to you based on your own circumstances and goals.

After all, everyone's situation is unique, and what may have worked for your friends, siblings or parents may not be in your specific best interest.

Here are some common beliefs many people hold dear, though perhaps not always for the best.

1. "Carrying a small balance on your card will actually benefit your credit"

When it's time for you to get an auto loan or a mortgage, you may find yourself wondering about your credit score. It's important to know what it is and to make an effort to improve it.

The higher your score is, the better the loan you'll be offered by lenders.

There are many factors that go into calculating your score and your credit cards and the balances you have on them are certainly a factor. However, intentionally carrying a balance from month to month is not in your best interest. Quicken Loans explained that scores take into account payment history and debt owed, but not necessarily how much is on the card.

"The primary thing that credit scoring agencies look for is on-time payments, not the balance of your account," said Jana Castanon, an Ohio-based community outreach coordinator at a credit counseling organization.

Carrying a balance won't do your credit score any favors, but high interest rates may hurt your financial health. By not paying your card off in full, you are subjecting yourself to being charged interest on the remaining debt.

2. "A home is the best investment you can make"

Generally speaking, a home is a great investment.

If you own a house for several decades, you will accrue equity on it that you can use elsewhere in life if you choose to refinance, or you can make a pretty good return on your investment when you sell. Plus, it gives you a nice place to call your own, to raise a family in or to just grow old in. A house gives people something to be proud of and gives them a sense of accomplishment. Most people will agree that home ownership is an essential part of the American Dream.

Plus, under the right circumstances, you may wind up saving money you would have otherwise spent on rent. In fact, Trulia found that buying a house is on average 23 percent cheaper than renting one.

However, this doesn't mean that home ownership is for everyone. For instance, take Trulia's statistic. It only applies to those people who meet some specific criteria:

• Put 20% down
• Get a 30-year fixed-rate mortgage
• Live in the home for at least seven years

What's important about this information is that many younger buyers can't afford a 20-percent down payment, and many don't live in a home for more than five years.

Plus, everyone's situation is different. Perhaps you hope to advance your career, but you may be relocated in the process. In this case, you may be better off renting because you may end up living in the home for too short a period to benefit your finances. Plus, if you choose to buy, you'll also be stuck with the task of selling your home when it's time to move.

3. "I'm too broke to save money"

It's not likely that you've heard this advice from any sage parent or grandparent, but it is a widely held belief among working adults.

The truth is, every adult should be putting aside money. First, everyone should have a stash of money to use in case of emergencies. Then, everyone should begin saving money regularly for retirement. It's also a good idea to put money aside for future big purchases, whether they are a house, a car or a vacation.

Listen Money Matters pointed out that by waiting until the end of the month to put money aside works against most people. They wind up spending all of their money because it's all readily available. Instead, move some money over at the beginning of the month. You can't miss money you never had. Just be sure you have enough left over for bill payments.

STAY TUNED FOR PART TWO COMING NEXT WEEK!

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