We have all done it: Buy something just because the monthly payment is low. It happens at electronic stores, auto dealers, and even late night infomercials.
There are so many ways to get credit cards and other lines of credit that it is unsurprising that so many people get in over their head. U.S. News & World Report put together a list of seven common financial mistakes. Among the mistakes they highlight is seeing the monthly bill as an indicator that something is in your budget.
Equating monthly payments with affordability: Far too many of us decide whether we can afford something based on whether we can manage the monthly payment. This is particularly true for homes, cars, and furniture. But just because we can handle a payment does not mean we can truly afford something. Monthly payments also ignore the true cost of ownership. A car, for example, costs a lot more than the monthly payment when you consider insurance, gas, repairs and maintenance. Instead of focusing on the monthly payment, separate needs from wants and evaluate how you might better use the money. If you still have consumer debt, for example, consider paying the debt off before buying something that will commit you to future monthly payments for potentially years to come.Think about this for a second when you are buying a car. Maybe you can get approved to extend the term and lower the payments, but does it help you in the long run? Human nature takes over when we think about shortening the loan and paying a higher payment. That side of the argument may be that if you are willing to have a higher monthly payment, you could buy the car you REALLY want. $500 or $600 per month may be affordable today, but what if you lose your job or have unexpected medical costs? We are not saying that either option is better than the other, but make sure you think about the pros and cons before you sign on the dotted line.
The rest of the list:
1. Buying expensive mutual funds.
2. Neglecting credit scores.
3. Equating monthly payments with affordability.
4. Overpaying on a mortgage.
5. Missing good deals online.
6. Overpaying taxes.
7. Making minimum payments on credit cards.