How Your Financial Decisions Affect the Big Picture

Each financial decision you make can either help or hinder your financial situation. Some decisions have a positive impact on your budget, net worth or both. Others have the opposite effect, and they can prevent you from building a nest egg and increase your financial standing. It is important to understand the impact that each individual decision you make can have, and these are five of the more significant things that can affect your situation in different ways.

Your Car Loan

If you are like most people, you have at least one to two car loans that are being used to make it more affordable for you to own and drive your car. The convenience of small monthly payments on what is one of your larger expenses in life is important. However, there are two factors to remember about a car loan. First, the interest charges on a car loan cause the total price you pay to be far more than the car was ever worth initially. This is coupled with the fact that most cars depreciate in value quickly.

Second, a car loan payment is typically a very large expense in a budget, and this is money that you could be using for other more beneficial things. Keep in mind that the loan payments are being used to pay for something that depreciates in value rather than appreciates. If you must have a car loan payment, keep this as low as possible. The same goes for your auto insurance. makes sure be cautious when getting a loan or purchasing insurance by getting an auto insurance quote comparison before making any decisions.

Your Home Mortgage

A home mortgage is often viewed on the same level as a car loan, but it should not be. Real estate values may have their ups and downs, but the general trend in real estate value is upward over time. Your mortgage is being used to leverage the purchase of an appreciating asset. In addition, property taxes and mortgage interest are deductible, and this sets this debt apart from other types of debts. Generally, you must either pay rent or make a mortgage payment, and the mortgage payment is preferred because it is being used to buy an appreciating asset and it brings you tax deductions.

Your Credit Cards

Many people carry credit card balances, but the general goal should be to eliminate credit card balances. Some state that they are building credit, and those who use credit cards responsibly by maintaining very low balances or by paying the balances off in full each month may accomplish this goal. However, you can also build credit through your home mortgage payment and loans on other assets. Credit cards generally have very high interest rates and a revolving term, and this makes them one of the worst types of debt to have with regards to your financial situation.

Your Savings Accounts

A savings account balance can help your financial situation, but only to a point. A savings account will generate a very low return on your money, and almost every other type of investment vehicle you can choose will generate a better return for you. However, a savings account balance gives you readily available cash in case of an emergency, and this can prevent you from going into debt with high interest credit cards and loans. Therefore, maintain a reasonable balance in your savings account to cover emergency expenses, and invest other money available.

Your Investments

Whether you’re interested in investing in satellite internet or barndoor hardware, If you have funds available to make investments, you should do so. Investments can improve your financial situation by helping you increase your net worth. From CDs and bonds to stocks, mutual funds and even real estate, there are many types of investments that you can choose from that typically will outperform your savings account interest rate. These are assets that appreciate in value, and your goal should be to purchase as many assets as you comfortably can afford to.

Understanding how different accounts can help you to grow your money or can eat away at your bottom line is important. These are among the most common types of accounts people have today, and you can use this information to help you make more informed financial decisions going forward.

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