You know the common reasons for getting in over your head financially. Too many credit cards, a house payment that’s a little too expensive, losing a job, or simple financial illiteracy. It’s not easy to predict exactly what will put you at a deficit at month’s end, but here are a few surprising reasons for debt and how to avoid overdrawing your bank account.
Investing Too Much
Yes, it is possible to invest too much. If you’re too focused on your future savings and retirement, you might not putting enough priority on the here and now. It’s one thing to under-diversify in your investments—it’s another to simply invest too much. Your intentions might be pure, but let’s look at some facts.
- You can’t access your 401k without penalty until you’re 59.5 years old. If you put too much in during your earlier years, you may be wishing you had some of that back if you run into an emergency like losing a job or an accident that totals the family car.
- Investing heavily in stocks gives you a chance of retiring early, but it also brings greater risks of putting you further behind (and leaving you with fewer stable investments, like bonds).
Be careful that you’re planning for the present as well as the future. Don’t put all your eggs in one basket, and make sure you keep a few eggs in your emergency savings account too.
Everyone knows that weddings can be elaborate, expensive affairs, but divorces can be just as damaging to your bank account. Realize that when you go through a divorce, your bills are going to rack up depend on a few things:
- What type of divorce you get
- How complicated and frequent the conflicts are
- Where you live
- How complex your affairs are (shared property, assets, children, etc.)
According to CNBC, divorce can cost you up to $50,000 in a worst case scenario. Of course, best-case scenario would be a straightforward mediation, which would only cost you a few thousand dollars. Unfortunately, the more emotionally challenging your divorce is, odds are you’re going to be paying more financially for it too.
For those who have never done it, take note: gambling can be just as addictive as alcohol or smoking. It’s easy to roll the dice one more time or play one more round of cards, on the off chance that you’ll make it big enough to pay off all of your previous gambling debts.
Odds are, that mentality is only going to sink you deeper into debt. Stop trying to gamble to solve your debts. Instead, find a second job, cut up your credit cards, seek professional financial help, and let your family and friends know that you’re trying to quit gambling. Having a support system will be the fastest way to get out of debt and break your gambling addiction at the same time.
Banking on a Windfall
In hindsight, waiting for that bonus at work, that rich relative to pass away, or for the unexpected win at the lottery is a ridiculous way to manage your finances. But too many people spend freely as they wait for the windfall, and when it never comes they find themselves in deep debt with no way to get out.
If you wake up one morning to find that you’ve put too much on your credit cards as you’ve waited for Uncle Scrooge’s inheritance money, meet with a financial advisor and set up a strict budget, suggest the experts at A C Waring & Associates Inc.
Being the Joneses
You know how everyone wants to keep up with the Joneses? Well, even the Joneses struggle to keep up. It would probably surprise you to know just how much the Joneses’ car payment is, how much they still owe on their mortgage, and how much credit card debt they have racked up from the new yacht they just bought.
Keeping up appearances can be surprisingly expensive, even for the people who seem to have it all. Instead, focus on living within your means, even if it means driving a used car or sacrificing the cruise to the Bahamas in favor of a road trip to your favorite campground for the summer family vacation.
Sometimes the path that leads to debt is lined with warning signs. Other times, it’s not so obvious how far or fast you’re traveling. The easiest way to get out of debt is to never get in too far over your head in the first place. Keep an eye on your budget, and don’t let your guard down if you want to get out and stay out of debt.