There are financial mindsets that can lead you to success. And there are those that can lead you to accumulate a lot of debts. You have to make sure that you have the right set of mindsets so you will not jeopardize your financial position by mistake.
But how will you know which mindsets to develop? The answer to that is financial literacy. Apparently, poor financial literacy and lack of money management skills cost consumers a lot of money. Based on the study of a diverse group, it was estimated that their lack of financial knowledge cost them an average of $1,230 in 2018. If you calculate this based on the 240 million adults in the US, that means it cost Americans a total of $295 billion in one year.
That is a whole lot of money to be wasted just because you do not know what you are doing. If you really want to improve your personal net worth, you need to work on improving what you know about money. A good place to start is developing the right financial mindsets.
Financial mindsets that can destroy you
When you have the right mindset, it is easier for you to achieve financial success. Your mindset can help you develop financial habits that will lead to better money management. We all know that to be considered a financial success, you need to know how to manage your money wisely. It is not about how much you are earning. You can earn a 6-figure income and still be a financial failure. You can earn much less than that and find it easier to be successful. The key is in financial management.
To accomplish that, you need to start with the right mindset. Here are the financial mindsets that you have to avoid if you want to stay away from destructive financial issues like mountains of debt.
Living without a plan
There are so many types of plans that you can use to help manage your money. These include budget plans, financial plans, and even a spending plan. Some people might think that this is a waste of time. But if you want to be organized, you need a plan. Having one will help you have an overview of your finances. Through your plans, you can make better decisions about your money.
Aiming for unnecessary improvements
There are a lot of financial mindsets that will quickly lead you to debt. This is one of them. We deserve to improve our way of life – but it has to be necessary before we do it. Sometimes, we are quick to make a lifestyle upgrade after a small increase in income. If it is not necessary, you do not have to buy a new car. You do not have to live in a bigger house. Stick to what is just necessary and focus on a higher quality of life and future. It is better to be financially secure than living in a house that is much too big for you.
Being careless about the “good debts”
We all know that there are good and bad debts. The good debts are those that can help increase your net worth. These include student loans, mortgage, business loans, etc. Although this is something that can help you improve your financial position, you should not be irresponsible about it. Only borrow what you need – nothing more. And you should also make sure that you have a repayment plan. Even a good debt can ruin your finances if you are not careful with it.
Using credit cards as an extension of your wallet
Among the financial mindsets that are destructive, this is another one that you need to prioritize. This is a quick way for you to get yourself into a deep debt mess. If you want to avoid it, you need to stop thinking that your credit card is an extension of your wallet. Even if your name is on it and you are allowed to use it for purchases, that is not your own money that you are using. Every time you swipe that card, you are borrowing from the creditor. You have to pay it back and plus high interest. Unless you are sure that you can pay the balance in full at the end of the month, keep your credit card purchases to a minimum.
Failing to take steps to improve financial security
Financial security is an underrated way of avoiding debt. When you are financially secure, it means you can face a crisis without putting your finances in danger. One of the best ways to do that is to save enough emergency fund. This will give you the money you need for unexpected expenses. You do not have to borrow money for it. Make sure this is one of the financial mindsets that you will develop.
Another thing that you can do to improve financial security is to save up for your retirement. It is best to start as soon as possible. The earlier you start, the more you can benefit from compound interest. It will help grow your retirement fund quickly and make you more secure financially.
Avoiding money talks
This is a controversial financial mindset that a lot of people are struggling with. Some couples do not feel comfortable talking about money – even with their significant other. According to reports, 88% of Americans find it hard to discuss money. It has to be noted that these are the same people who believe that it is important to discuss money matters. Apparently, the only generation that seems to be warming up to the idea is the Millennials.
Consolidate debt to help pay it off
In case you are too late in developing these financial mindsets, that is okay. In case you already have a lot of debts, you can still improve your financial future. You just have to consolidate your debts to make it easier to pay it off.
There are a couple of ways that you can consolidate all your debts. You need to learn how to analyze your financial situation so you can find the best debt solution that you can afford. Here are some of your options to consolidate debt.
This involves a credit counselor who will help you create a debt management plan. This is a plan that will be patterned according to how much you can afford to pay off. This should make it easier for you to commit to. Once you have agreed to the plan, it will be presented to your creditors and lenders. If they approve, you will give a single monthly payment to the credit counselor who will take charge of distributing the money to your creditors.
Debt consolidation loan
This involves borrowing a loan that is enough to pay off your multiple debts. You need a good credit score so you can have a low-interest rate on the loan. Once you have the loan, you can pay off all your other debts. This will leave you with only one loan to pay off. Hopefully, this restructuring of your debts will make it easier to completely pay off.
This involves a new credit card account that is offered with a 0% interest rate. You will transfer all your debts to this account. Every payment you make will only be paid towards the principal amount – since you have a 0% interest rate. Take note, though, that this is only temporary. The 0% rate is only for a certain period so make sure you pay as much as you can to take advantage of the savings you can get from this arrangement.