Do you plan and review your budget periodically and are able to follow it very month? Even if yes, then also you need to keep a check on whether or not you are making these 3 financial mistakes, discussed in this article, committing which can be harmful for your financial situation.
- Tapping your home equity to invest money elsewhere - If you have enough equity in your home, you can think of tapping your home equity and invest the money for better returns in the future. It may seem it's a very good opportunity for you to improve your financial position, however, think twice before doing it. If you want to invest it in the stock market, there is no guarantee that you'd get lucrative returns; you might lose the money too. Instead, you can repay your mortgage loan completely and save yourself from making the interest payments for a relatively longer time period. Moreover, you should think carefully before tapping your home equity, since you may lose your home if you're not able to repay the new loan within the stipulated time period.
- Cashing out your 401(k) retirement fund - Many of you opt for cashing out your retirement fund when you change a job. However, if you do so before the change of 59 ½ years, then you will have to pay 10% early withdrawal penalty on the amount withdrawn along with paying tax on it. Moreover, you will also lose what your money would have generated at retirement. Likewise, you should not stop contributing to your 401(k) fund unless it's a financial emergency. If you do so, you'll lose the matching contribution what your company deposits to your retirement account. While changing your jobs, what you can do is you can roll your 401(k) into an IRA, since the latter offers wide range of investment options and you can choose one as per your suitability.
- Increasing your expenses as your income increases - You will never be able to build a good financial future if you do not control your expenses when you get a hike in a job. The underlined meaning is that if you choose to live a better lifestyle that is, allocating more funds to your monthly budget since you've got a better job or a salary hike, then how will you use the extra money for investment purposes? However, this doesn't mean that you won't enjoy a better lifestyle; but, at the same time, do not use the entire extra amount to make more room in your budget. You can spend an amount for a good vacation but think twice and do the necessary calculations before incurring a fixed expense every month.
Therefore, next time do not make these common mistakes and take proper precaution to save your hard-earned money and use it for getting better returns in the future. By doing so, you will climb one step higher in the ladder to attain a life free of financial worries and also build a better financial future.