Did you know that the majority of adults that have yet to establish an emergency fund will create the reasoning for the lack of emergency fund because a credit card with a high credit limit is available to them?
For most people, the credit card seems like a safety net that can be used in the case of an income shortfall, in the case that the consumer loses their job, or even in the case that there is a death in the family. What people don’t consider is the capitol that is going to be required to repay the credit card debt, and where this money is going to come from when funds are already tight and the emergency fund is required.
Are you one of these consumers who have justified the lack of an emergency fund with a high credit card limit? Are you one of these customers who have decided you don’t need an emergency fund? This is one of the common financial lies that we tell ourselves while we are preparing for the future, allowing you to reduce the instance of savings coming from the budget.
Financial lies we tell ourselves, number 2: I can afford to buy a home
Many people are under the impression that renting is truly throwing money down the drain every single month when the rent is being paid – but these consumers don’t take into account the true costs that are associated with owning a home and how these costs are increased over the cost of renting a home. For the home ownership course, there is more than the mortgage that must be paid. The consumer should take into account homeowner’s association fees, condo fees, and other fees that must be paid by the consumer.
In addition, the homeowner is instructed to save a certain percentage of the homes’ value for renovations, repairs and upkeep. Compare this with the fact the homes are often more expensive for utilities, compared to renting where these are sometimes covered by the homeowner and the consumer has the advantage when renting, as they are going to be required to pay less out of pocket for the rental home.
Many homeowners or potential homeowners justify the large scale purchase that is out of their budget with the fact that the bank is willing to lend the consumer the money to purchase the home and therefore the consumer is able to afford the loan that is being offered by the financial institution. This is often not the case, as the loan being offered by the bank is not something that can be afforded by the consumer, and is not recommended in the purchase.
Learning these common financial lies can help the consumer to make the right decisions for their finances, helping the customer to avoid debt and create a healthy financial situation by creating an emergency fund and not having to rely on debt in the case of an unexpected expense in the future. This way, consumers can promote financial health and honesty.