Getting rich requires concentration, discipline, and hard work. It is difficult to get rich.
Going bankrupt, on the other hand, is really easy. Very easy! In fact, most of us are probably only one misfortune away from that.
But this is the good news. By being proactive, you can prepare to avoid these pitfalls.
Here are the quickest ways to go bankrupt and what you can do to avoid them.
1. Living beyond your means
Too many of us are guilty of this, because we live in a consumer society and an Instagram culture: Look at me, look at me, look at how successful I am.
Here are examples of how to live beyond your means:
- Being “poor at home” with your dream home and a huge mortgage you can barely afford
- Moving to the city of your dreams without the income to live there
- Buying an expensive car to impress people
- Excessive spending on travel
Get in the habit of spending less than you earn.
2. Not having an emergency fund
Living frugally also allows you to create an emergency fund. If you don’t have an emergency fund, an unforeseen emergency can force you to deplete your credit cards and / or borrow money. So you are spending money paying expensive interest.
An emergency fund is an easily accessible reserve of money equal to a salary of three to six months, in case you unexpectedly lose your job. And millions of us have unexpectedly lost our jobs in the past year.
With the Aspiration Spend account, you can earn up to 5% cash back on your debit card purchases. With the Aspiration Save account (where you can channel your tax refund), you can earn up to 20 times the average interest on your savings balance. (The FDIC reports that the average account earns only .05%.)
It takes five minutes to register.
3. Make bad investments
Investing is a key strategy for growing your money. But there are so many bad investments you can make!
For example, be careful with multi-level marketing schemes. Direct selling businesses can be an opportunity to get ahead on your own with the support of an established brand. But the MLM model easily lends itself to scams, so do your research before signing up and handing over the startup money.
An easier way to invest is through an app like Robinhood. Whether you have $ 5, $ 100, or $ 800 to spare, you can start there.
Yes, you’ve probably heard of Robinhood. Both beginners and investing professionals love it because it does not charge fees and you can buy and sell stocks for free, with no limits. In addition, it is very easy to use.
What is the best? When you download the app and fund your account (it doesn’t take more than a few minutes), Robinhood deposits a portion of the free shares into your account. However, it is random, so the shares could be worth between $ 2.50 and $ 200, a good boost to help you build your investments.
4. Not having a budget
Don’t you want to go bankrupt? Don’t want to make a budget? Try budgeting for people who hate budgets.
The 50/30/20 method of budgeting is one of the easiest ways to control your spending. No 100-line spreadsheets or major lifestyle changes required.
Here’s how it works: Take your total after-tax income each month and divide it in half. That’s your budget for essentials (50%). Take the rest and divide it into personal expenses (30%) and financial goals (20%).
Let’s break it down – that’s 50% for things like utilities, groceries, drugs, minimum debt payments, and other essential expenses. Then there’s 30% for the fun: Thai takeout, your Netflix subscription, dressing up a skeleton on your lawn for Halloween.
That leaves 20% for your financial goals, such as additional debt reduction payments (any amount above the minimum monthly payment) along with retirement savings and investments.
This is a smart way to avoid bankruptcy.
5. Burn money on credit card interest
More and more Americans are struggling financially due to high unemployment and are depleting their credit cards. The interest rates those cards charge you can skyrocket above 20% and will constantly consume a large chunk of your income that you can never move forward.
The truth is, your credit card company doesn’t care. It’s getting rich by scamming yourself with high interest rates. But a website called AmOne wants to help.
If you owe your credit card companies $ 50,000 or less, AmOne will match you with a low-interest loan that you can use to pay off each of your balances.
The benefit? You will have an invoice left to pay each month. And because personal loans have lower interest rates (AmOne rates start at 3.99% APR), you will get out of debt. what Too much faster.
AmOne will also not force you to queue or call your bank. And if you’re concerned about not qualifying, it’s free to check online. It only takes two minutes and it could help you eliminate this red flag in your life, once and for all.
Mike Brassfield ([email protected]) is a senior writer at The Penny Hoarder. He is not rich, but he is not broke either.