3 financial pitfalls you should avoid

Money regrets often aren’t easy to handle. When you take a step — a big one — in the wrong direction, you may end up in a muddy situation that is costly to fix. Although many of personal-finance mistakes can be avoided by reading common signs, some troubles are easier to predict than others. That is why it is always good to avoid beating yourself about whatever happened, and take from every financial difficulty a lesson for the future.

There are many ways to avoid making wrong money decisions, but generally there are two early signs: the first is that you’re agreeing to take up a financial commitment that well beyond your immediate financial capabilities. This is a no-no. Stretching yourself thin is a risk that can spell trouble pretty quickly. The second is a situation — a job, an investment, or a reward — that too good to be true. With either or both of these signs, you must pause and review the situation thoroughly. Oftentimes, you will find ways to work out an alternative or back completely from the deal – with no losses at this stage.

If not, you may end up in one of these financial troubles that can spell a good scale of damage. 

Mounting debt

If the past few years are any indication, debt can ruin lives. Although many banks have tightened their lending criteria since the financial crisis, it remains relatively easy for people with a stable income to get personal loans and credit cards of all types. With no lack of temptations, money pushed your way can be attractive. However, here is the downside of debt: Once you get the money, it is yours. In other words, once the money is in your bank account, or the car is financed, or the like, returning the debt comes with a price and penalties — in some cases.

In addition, with banks typically holding blank checks as security for your personal loans, you may find yourself responsible for a much larger amount than the actual debt. That is because interest and penalties on missed payments add up quickly over time. 

Loss of savings

Some money decisions can, and have, cost people their life savings. When it comes to investments, there are many ways to verify any claims made by a financial adviser or a bank representative. Despite the legitimacy attached with recommendations made by a financial planner or adviser, it is still your duty to double check for anything that seems out of the ordinary. This verification process also should include checking the credentials of your financial adviser and getting testimonies from independent sources regarding this person’s integrity.

Similarly, keep your eyes open for scams. With the advance of technology, scams have evolved, and it is easy – even for the most seasoned people – not to see through some of the complex schemes. If it’s understandable that you won’t be researching every possibility, but again if something doesn’t seem right, don’t proceed. With some research, you may find that your worries are valid and the scheme is more common that you’d ever think.

Illegal jobs

If you’re cash-strapped, you may be anxious to find a side job or a business that brings extra income. Online forums are teeming with so-called home-based businesses that promise significant cash quick. Not only these so-called opportunities may be run by scammers who are after you own money, by collaborating with them you may be crossing several legal lines.

Pay particular attention to people posing as potential business partners and who don’t show up for a meeting claiming that they had an emergency, who provide an e-mail address or a foreign address as the only contact and identification information, or who are eager to send you money too early in the process. All of these are red flags that shouldn’t be overlooked.

Rania Oteify is a former Gulf News Business Features Editor