Tweet
Ok, I want to create a list of financial mistakes people make, and I would like others to add to the list. I am going to try to put them in order from worst to bad. I hope that this list would be something that people could read through rather quickly and spot areas that they might not have thought of and thus be able to make a change or avoid a common pitfall that prevents people from achieving financial security.
Please be brief and try to use the same format as my list. I will state the problem in a few words then explain in as few sentences as possible. This way a person can skim through the list and avoid wasting time reading stuff they already know. I will cut and paste your additions onto my list. Unless we fail to reach a consensus (annuities are all bad! No some annuities are good!) If you have any personal experience that you would like to add, separate them from your suggestion to make it easier for me to cut and paste. I will add a post to my thread as an example. Please end your addition with your user name.
If you think something should be added to an existing explanation feel free to suggest it but I do want to keep them concise. If someone reads something on the list that they want more info on feel free to ask. Each of these would make a great thread topic. Please feel free to make suggestions about the order and make a case for why you would change it. There are some very financially savvy people on this forum; if every one contributes this could be a very useful tool for new people.
NOT HAVING A BUDGET. A written budget that includes all monthly necessities as well as money set aside each month for quarterly and yearly expenses. Even better if it includes saving for your next vehicle. This budgeted amount should be kept well below income, if it is not, it must be paired down or more income must be found.
NO EMERGENCY FUND. You must build an emergency fund of at least 3 to six months of your monthly budget. This will help avoid costly interest on borrowed money and prevent you from tapping retirement funds. One can not over state how much having this cushion can relieve financial stress. Some people think they cant afford to set aside money for an emergency fund. The truth is, you cant afford not to.
ADDICTIONS Cigarettes, chewing tobacco, alcohol or drugs, Not only are all these things terrible for a budget they are very harmful to your health. This makes them budget killers today as well as budget killers in the future. A 20 year old who spends $4 per day on cigarettes may not live until 65 years of age but a 20 year old who quits and invests that $4 per day would have $600,000 (8% compounding) DUIIs are very expensive. Illicit drugs need no explanation.
NOT SAVING FOR RETIREMENT. Start saving early most people wait until retirement is right around the corner. That is to late to generate growth from interest. For every 1$ that a 20year old invests, they can expect to have $30 at 65 years of age. For every $1 a 30 year old invests they can expect $15 at 65 and a forty year old would have $7 for every $1 invested. A 20 year old that save $200 per month for 20 years and stops saving at 40, will have $800,000 at 65. A person who waits until 40 and saves the same amount $200 per month, will have only $190,000 at 65. The person who saves $200 per month from age 20 until 65 will have 1 million dollars. These assume and 8% compounding interest, what one might expect from a well diversified portfolio.
BEING MORTGAGE POOR. Buying or renting at too high a price is a budget killer. Keep the total cost of your mortgage (taxes and ins.included) to around 30% of your income. For duel income households consider weather you could make the mortgage if one income is lost. If not double or triple your emergency fund.
CARRYING A CREDIT CARD BALANCE. Credit cards are a great convenience if paid in full every month, but they are not a good way to finance a lifestyle you can not afford. Pay them off and keep them paid.
BUYING A BRAND NEW CAR OR TOO MUCH CAR. New cars lose thousands of dollars of value the moment you drive them off the lot. Buy used from a private seller for the best deals. Dont Finance more car than you can easily afford.
FINANCING A CAR AT A HIGH INTEREST RATE. Save up and pay cash for a clunker, walk ride a bike or take the buss, But DON’T finance a car for more than 12%. for 3 years.(12% is bad but 24% is opening a financial vein) Understand that dealerships make more money sticking you into a bad loan than they do selling you the car. Always be saving for your next vehicle so that in the future you can pay cash for a good car.
DON"T LEASE A CAR The best part of buying a car is that you own it, the worst part is eating the deprecation Leasing is for people who want more car than they can afford so they give up the best in exchange for the worst.
NOT HAVING TERM LIFE INSURANCE If you have dependents. You must protect them from the possibility of your death. Rates are lower than ever and web sights like selectquote will help you to get the best rate. You should buy ten times your income for at least a 15 to 20 year term. For a 40-year-old non-smoker that’s about $50 per month. The younger you are the cheaper it is.
BRUSH , FLOSS AND EAT HEALTHY Take care of your health, health care is expensive especially in old age when you can least afford it. Taking care of your teeth and staying fit and active will save thousands of dollars. Don’t put off getting little repairs done, spend $100 and half hour to get a filling done today or put it off and spent $1000 and a couple of very unpleasant hours getting a root canal later. Eating cheap processed food might seem to keep your food budget down, but it is likely to cost you more for their lack of nutrition. Eat a healthy well balanced diet.
CASHING OUT YOUR 401k: About 60% of 401k participants who leave their job cash out their 401k account. That is a huge mistake on 3 levels. You must pay income tax on all the money. You get hit with a 10% early withdrawal penalty, and you give up the tax-free growth that the money would have enjoyed until retirement. Instead of cashing out, roll over the money into an IRA.
MARRYING SOMEONE WITH WHOM YOU ARE FINANCIALLY INCOMPATIBLE: So many problems and divorces could be prevented if people would consider financial compatibility when choosing a mate. You don't need to be married to someone to know how they handle money. If it is dramatically different than how you handle money, move on. Don't marry them expecting to change them. Don't marry expecting to turn a spender into a saver. It just isn't going to happen.
FAIL TO TEACH CHILDREN The #1 regret most parents, of adult children have is that they failed to teach their kids how to handle money. To many people money is such a private and personal thing that they don’t even discuses it with the next generation. This must change! The basics of sound finance should be not only taught to your kids, but your kids should learn by example. Let them see you practice it with your money and give them opportunities to earn and practice those principles with their own money. Teach them that money comes from effort; teach them to save for short-term goals as well as long-term goals. Teach them the proper use of as well as the dangers of credit.
BUYING EXTENDED PRODUCT WARRANTIES: Stores and companies make a fortune by convincing customers to buy extended warranties. They are a very expensive form of insurance against an event that is very unlikely to happen. Most products either fail early on if they are damaged or defective or they last a good long time. The chances of using the extended warranty are very, very small but the cost is substantial. Just say NO.
I DESERVE IT/YOU ONLY LIVE ONCE/SOMETIMES YOU JUST HAVE TO TREAT YOURSELF - it's so easy to use this rational to justify charging or going in debt for some big luxury item, but also easy to turn this into a habit. next thing you know it's a constant deal and you are putting every whim on debt. If you want to think you deserve something, how about financial security.
That’s what I have so far please add to to the list make suggestions for changes and no doubt some things might need to be corrected
Please be brief and try to use the same format as my list. I will state the problem in a few words then explain in as few sentences as possible. This way a person can skim through the list and avoid wasting time reading stuff they already know. I will cut and paste your additions onto my list. Unless we fail to reach a consensus (annuities are all bad! No some annuities are good!) If you have any personal experience that you would like to add, separate them from your suggestion to make it easier for me to cut and paste. I will add a post to my thread as an example. Please end your addition with your user name.
If you think something should be added to an existing explanation feel free to suggest it but I do want to keep them concise. If someone reads something on the list that they want more info on feel free to ask. Each of these would make a great thread topic. Please feel free to make suggestions about the order and make a case for why you would change it. There are some very financially savvy people on this forum; if every one contributes this could be a very useful tool for new people.
NOT HAVING A BUDGET. A written budget that includes all monthly necessities as well as money set aside each month for quarterly and yearly expenses. Even better if it includes saving for your next vehicle. This budgeted amount should be kept well below income, if it is not, it must be paired down or more income must be found.
NO EMERGENCY FUND. You must build an emergency fund of at least 3 to six months of your monthly budget. This will help avoid costly interest on borrowed money and prevent you from tapping retirement funds. One can not over state how much having this cushion can relieve financial stress. Some people think they cant afford to set aside money for an emergency fund. The truth is, you cant afford not to.
ADDICTIONS Cigarettes, chewing tobacco, alcohol or drugs, Not only are all these things terrible for a budget they are very harmful to your health. This makes them budget killers today as well as budget killers in the future. A 20 year old who spends $4 per day on cigarettes may not live until 65 years of age but a 20 year old who quits and invests that $4 per day would have $600,000 (8% compounding) DUIIs are very expensive. Illicit drugs need no explanation.
NOT SAVING FOR RETIREMENT. Start saving early most people wait until retirement is right around the corner. That is to late to generate growth from interest. For every 1$ that a 20year old invests, they can expect to have $30 at 65 years of age. For every $1 a 30 year old invests they can expect $15 at 65 and a forty year old would have $7 for every $1 invested. A 20 year old that save $200 per month for 20 years and stops saving at 40, will have $800,000 at 65. A person who waits until 40 and saves the same amount $200 per month, will have only $190,000 at 65. The person who saves $200 per month from age 20 until 65 will have 1 million dollars. These assume and 8% compounding interest, what one might expect from a well diversified portfolio.
BEING MORTGAGE POOR. Buying or renting at too high a price is a budget killer. Keep the total cost of your mortgage (taxes and ins.included) to around 30% of your income. For duel income households consider weather you could make the mortgage if one income is lost. If not double or triple your emergency fund.
CARRYING A CREDIT CARD BALANCE. Credit cards are a great convenience if paid in full every month, but they are not a good way to finance a lifestyle you can not afford. Pay them off and keep them paid.
BUYING A BRAND NEW CAR OR TOO MUCH CAR. New cars lose thousands of dollars of value the moment you drive them off the lot. Buy used from a private seller for the best deals. Dont Finance more car than you can easily afford.
FINANCING A CAR AT A HIGH INTEREST RATE. Save up and pay cash for a clunker, walk ride a bike or take the buss, But DON’T finance a car for more than 12%. for 3 years.(12% is bad but 24% is opening a financial vein) Understand that dealerships make more money sticking you into a bad loan than they do selling you the car. Always be saving for your next vehicle so that in the future you can pay cash for a good car.
DON"T LEASE A CAR The best part of buying a car is that you own it, the worst part is eating the deprecation Leasing is for people who want more car than they can afford so they give up the best in exchange for the worst.
NOT HAVING TERM LIFE INSURANCE If you have dependents. You must protect them from the possibility of your death. Rates are lower than ever and web sights like selectquote will help you to get the best rate. You should buy ten times your income for at least a 15 to 20 year term. For a 40-year-old non-smoker that’s about $50 per month. The younger you are the cheaper it is.
BRUSH , FLOSS AND EAT HEALTHY Take care of your health, health care is expensive especially in old age when you can least afford it. Taking care of your teeth and staying fit and active will save thousands of dollars. Don’t put off getting little repairs done, spend $100 and half hour to get a filling done today or put it off and spent $1000 and a couple of very unpleasant hours getting a root canal later. Eating cheap processed food might seem to keep your food budget down, but it is likely to cost you more for their lack of nutrition. Eat a healthy well balanced diet.
CASHING OUT YOUR 401k: About 60% of 401k participants who leave their job cash out their 401k account. That is a huge mistake on 3 levels. You must pay income tax on all the money. You get hit with a 10% early withdrawal penalty, and you give up the tax-free growth that the money would have enjoyed until retirement. Instead of cashing out, roll over the money into an IRA.
MARRYING SOMEONE WITH WHOM YOU ARE FINANCIALLY INCOMPATIBLE: So many problems and divorces could be prevented if people would consider financial compatibility when choosing a mate. You don't need to be married to someone to know how they handle money. If it is dramatically different than how you handle money, move on. Don't marry them expecting to change them. Don't marry expecting to turn a spender into a saver. It just isn't going to happen.
FAIL TO TEACH CHILDREN The #1 regret most parents, of adult children have is that they failed to teach their kids how to handle money. To many people money is such a private and personal thing that they don’t even discuses it with the next generation. This must change! The basics of sound finance should be not only taught to your kids, but your kids should learn by example. Let them see you practice it with your money and give them opportunities to earn and practice those principles with their own money. Teach them that money comes from effort; teach them to save for short-term goals as well as long-term goals. Teach them the proper use of as well as the dangers of credit.
BUYING EXTENDED PRODUCT WARRANTIES: Stores and companies make a fortune by convincing customers to buy extended warranties. They are a very expensive form of insurance against an event that is very unlikely to happen. Most products either fail early on if they are damaged or defective or they last a good long time. The chances of using the extended warranty are very, very small but the cost is substantial. Just say NO.
I DESERVE IT/YOU ONLY LIVE ONCE/SOMETIMES YOU JUST HAVE TO TREAT YOURSELF - it's so easy to use this rational to justify charging or going in debt for some big luxury item, but also easy to turn this into a habit. next thing you know it's a constant deal and you are putting every whim on debt. If you want to think you deserve something, how about financial security.
That’s what I have so far please add to to the list make suggestions for changes and no doubt some things might need to be corrected
Comment