How do you make smart money decisions when you have access to private funding? While you cannot avoid making mistakes when handling your money all the time, the goal is to limit these mistakes in order to avoid huge money losses. The key is earning profit to cover the loss.

Here are some of the biggest culprits that ruin finances and how you can avoid them:

Monthly amortization

How much do you spend each month on your mortgage? What about the installment on personal loans or business loans, or both? Consumer debts are also on the rise, as more and more people buy furniture and household items on credit. With the excessive interest rates that many lenders add on credits, it is not impossible even for high-income professionals to fully swarm in debt. Amortization can damage your finances especially if you have various debts to pay, and you miss the due dates. Interest rates could pile up, additional fees could accumulate and you may end up in a cycle of debt.

Being too easy on debt

If you feel comfortable with living in debt and lost your focus on making smart financial decisions—perhaps it is time to adjust your budget and lifestyle choices to save more and earn more.

It’s because it doesn’t make any sense to add debts simply because your monthly income fits the bill. For example, will you get a new mobile phone plan because you can afford to pay monthly? The same thing applies to cars, furniture, clothes and other items. While the monthly payment for the private funding may seem comfortable, the real cost of the item you bought on credit is not.

Overlooking the APR

How many individuals were actually conned into the installment process simply because they ignored the annual percentage rate? This year, take time to discuss the APR with the loan officer before you sign in your future income. While you can expect to pay more interest than the APR, especially if you miss payments, you will find out the true cost of the loan if you know the interest rate and the amount that it represents. And, don’t forget the compounding of interests.

Here are other practical tips to save your future unearned dollars from going down the brink of debt:
  1. Consider your long-term financial goals when choosing a loan product. Will you compromise your future unearned dollars in interest payments to pay for a certain expense today?
  2. Think about your current earnings and your future expectations when making financial decisions. Compounding interests can ruin your future wealth accumulation strategies. It is also impossible to reach financial independence when there is no concrete plan to deal with the future debts.

The harsh reality is that, regardless of the amount of savings you have today, unpaid debts compound overtime. As your losses are compounding, your future income will also keep on decreasing. So, you have a choice., you can opt for debt consolidation to pay off high interest debts and use the free money to earn interest., Or, you can pay interests as long as you want, losing more money in the process.

  1. Understand how money works. Money is a tool-and the best way to use it is to grow a portion of it while you spend for your needs and wants. Would you rather compound losses than earn profits?

If you get into debt, you will have to pay interest. The longer you pay it, the lesser chance you have to gaining financial independence soon. Or, do you want to earn interest on your borrowed money? One way of doing this is to consolidate your loans to save money on consumer debts and other existing loans. With lesser interest rate and one convenient payment, you will have extra money to invest into something lucrative.

As we get older it will be wise to make our own journey to financial literacy. While self-discovery sounds practical, there is nothing wrong in learning from the experts. You can attend a home-buying seminar—even when you have no intention of buying a home yet. Perhaps you can use the knowledge when preparing your taxes or house flipping, not only to sell but to add value to your current property.  You will also learn more about managing your finances by meeting with qualified financial planners; becoming a member of a credit union in your area and simply doing your own research about your retirement investment options.

The first step to financial independence lies in your palms. It is up to you to make the decision to grow your money, reduce your debts and use every financial resource like private funding as you walk on the pathway to financial independence.