Financial MisstepsSubmitted by Wealth Management Services Group LLC on February 11th, 2019
Personal finance, like just about everything else, is mainly common sense. Advice like “don’t spend more than you make; start investing while you’re young; don’t loan money to friends with the expectation of getting it back,” have been around for generations, and most likely will survive the next few generations as well. Even money mistakes that are corrected early enough will have little impact on your wealth going forward. What you do want to avoid are money mistakes that can be hard to recover from. Here are just a few:
- Making financial decisions emotionally. We’ve all been there, where we buy something we absolutely have to have, regardless of the cost. If it’s less than $1,000, consider it a lesson, but if you buy a house, a car, or impulsively quit your job, it can cost you much more than a few dollars. The rule here is never, ever, make a large financial purchase when feeling emotional, or while suffering a loss of any kind. Wait until you can better rationalize the purchase. If it requires an immediate decision, just walk away.
- Buying more house than you can afford. When looking to purchase a new home, be sure that you understand just how expensive that house will be apart from your monthly mortgage. Does it have a huge lawn or back yard? If so, consider the upkeep required and the water bill to keep the lawn green. How much will it cost to heat all of those empty rooms you really have no use for? If it’s in a rural area, how much more gas will you need to commute into the city? While it’s easy to plan for a monthly mortgage, the incidental costs and upkeep are what people typically regret when purchasing their dream home.
- Not planning for retirement. Retirement will sneak up on you. One day, you’re fresh out of school, and the next thing you know, you’re in your 50s with limited savings. Start early, putting aside as much as you can. Don’t think that you have to wait until you’re making a lot of money. Even putting away one percent of your salary will put you much further ahead than those that wait until their 30s or later to start saving.
- Living on your credit cards. This can be particularly tempting when first out of college and struggling to make ends meet. Having that credit card readily available can lead to some poor purchasing decisions. While establishing credit and using it responsibly is part of growing up, having that credit line handy makes it easy to take that vacation, buy that big-ticket item, or splurge for expensive dinners out. A good rule to follow is don’t use your credit card for anything that you can’t pay off at the end of the month. With the exception of in an emergency, your credit card should be used sparingly.
- Listening to the wrong people for financial advice. Your friend tells you about a great stock that he just invested in. Your uncle has a real estate project he would love you to buy into. But, before you part with your hard-earned money, talk to a financial advisor, who can point you in the right direction without any emotional attachment.