In the last post, we started a list of dumb things we do with money.
As I mentioned in that post, if you feel discouraged, don’t be! I’ve personally made a lot of the mistakes on this list in the past and that’s one of the reasons I was able to come up with such a long list.
As they say, it takes one to know one.
So, without further ado, let’s finish our list of 19 dumb things we do with money and give you some more tips on how to avoid burning up your cash on financial mistakes that can be easily avoided.
11. Being overly trusting
I’m sure you’ve heard the phrase, “Trust, but verify.”
For example, maybe you’re in the market for a car, and you heard on the radio that ABC Car Company is a good place to buy a car.
OK, no problem.
Instead of going out straight to ABC Car Company though, why not take five minutes and do a little research?
Before you go out and spend money on a big purchase like a car, consider finding answers to questions like the following…
- Does this business have any complaints listed with the Better Business Bureau website?
- Have your friends or family done business with this company?
- If so, what was their experience?
- Does anyone you know have other recommendations for alternative businesses to use?
Taking a few minutes to “trust, but verify” will save you a lot of money in the long-run.
It sounds like common sense, but you’d be surprised how uncommon “common” sense really is these days.
12. Forgetting to check your credit report
Did you know that you can get one free copy of your credit report every year from each of the three major credit bureaus at this website?
I recommend folks check their credit report at least once a year to make sure everything on your report is complete and accurate.
According to the Federal Trade Commission, approximately 25% of people have errors on their credit report that might affect their credit score.
Do you know why?
Because they don’t check it as often as they should! Your credit report and credit score can affect the interest rates you pay on debt, the rates you pay for certain types of insurance, and sometimes even whether or not you can get certain jobs.
Bottom line, it’s a big deal!
In between your free annual credit report checks, use a free app or service like Credit Karma or Credit Sesame that should alert you to any big changes to your credit file such as credit limit changes, new accounts, etc.
If something unexpected pops up, take the time to investigate further before a small mistake can turn into a big money problem.
13. Buying more house than you can afford
When most people buy a house, all they think about is the monthly payment.
But there are a slew of other costs you should think about, many of which are ongoing…
- Homeowner’s insurance
- Property taxes
- Home maintenance and repairs
- Lawn care
- Remodeling costs
As you can see, your monthly mortgage payment is just a small piece of the pie.
Unfortunately, if you’ve bought more house than you can afford, the only solution is to downsize by selling your current home and buying a smaller/less expensive home or renting until you have enough money saved up to purchase the home you want.
While you probably don’t think this is ideal, it’s certainly better than living on the constant brink of bankruptcy or foreclosure.
14. Holding onto a losing investment (maybe)
Whether it’s a stock that’s lost half its value, an old car that is no longer reliable, or some other losing “investment,” sometimes it’s time to cut your losses and move on.
But when is the right time to get rid of an investment that’s gone sour?
That depends on the investment.
For example, if an older car is no longer reliable and is costing you hundreds of dollars each month in repair bills, you might consider replacing it sooner rather than later.
A well-diversified, low-cost, equity mutual fund on the other hand, might be worth holding onto if it’s performance is on par with the rest of the market. It might also be worth keeping if it’s providing your portfolio with additional diversification benefits that other mutual funds can’t provide.
The bottom line is that holding onto a losing investment, regardless of what kind of “investment” it is, might be wise in some circumstances and foolish in others.
If you’re not sure which course of action is best in your situation, talk to a fee-only financial advisor who can help you take an objective look at all of your options, allowing you to make the best decision for your long-term financial health.
15. Failing to secure your online identity
It seems we don’t go more than a few days without the news reporting on a new security breach affecting millions of Americans.
While most of these security breaches in recent days have happened at physical store locations (i.e. Target, Home Depot, etc.) your online identity is still a big target.
Here are some tips to secure your identity online and decrease your chances of becoming a victim of identity theft…
- Use a password manager (i.e. Lastpass, 1Password, etc.) to help you create and store unique and hard to crack passwords for each of your online accounts
- Ensure you have the right privacy settings set up on social media accounts and don’t share things like your current location, full birth date, address, hometown, etc. online
- If credit card debt isn’t an issue for you, then consider using multiple credit cards (i.e. one for online purchases only, one for auto-paying bills, one for everyday use, etc.). This way, if one of your cards is compromised, it shouldn’t cause too much disruption in your everyday life.
For more tips on how to avoid becoming a victim of identity theft, check out this blog post.
16. “Saving” too much money
How many times have you heard yourself or another person say something like, “It’s normally $200, but it was on sale for $120, so I thought, ‘Why not? I’ll save $80, I might as well get it!'”
Correction: you didn’t “save” any money. You actually spent $120 that you probably shouldn’t have.
How do you stop doing this?
Start using a spending plan so that you know how much you can spend and what you can spend it on. Check out this tip in the previous post for more information.
Also, check out this tip in the previous post for a quick way to stop spending money on things you don’t need.
17. Limiting your giving
How can not giving away enough money be a bad thing?
It has to do with what giving does to our heart’s attitude towards money.
You see, giving away some of our money, changes our attitude towards all of our money and if you’re a professing Christian, you probably remember the words of Jesus in Matthew 6:21 (ESV), “For where your treasure is, there your heart will be also.”
Or Paul’s words to Timothy in 1 Timothy 6:10 (ESV), “For the love of money is a root of all kinds of evils.”
One of the surest ways to avoid the dangers of the love of money is through systematic, regular, and sacrificial giving.
So, how much is enough when it comes to giving?
I think C.S. Lewis has some pretty good advice for us in this regard…
I do not believe one can settle how much we ought to give. I am afraid the only safe rule is to give more than we can spare.
In other words, if our expenditure on comforts, luxuries, amusements, etc., is up to the standard common of those with the same income as our own, we are probably giving away too little. If our charities do not at all pinch or hamper us, I should say they are too small.
There ought to be things that we’d like to do but cannot do because our charitable expenditure excludes them.
-C.S. Lewis (Mere Christianity)
Giving reminds us that we’re not the ultimate owners of anything, God is.
And if we remember that important truth when we spend, save, give, and invest our money, we’re likely to be better stewards of the resources He has entrusted us with.
Check out this blog post for a list of 7 Christian ministries worthy of your support.
18. Spending money on unnecessary fees
Don’t pay for something that you can get for free just as easily.
Most of the time, the way to do this is to simply take a few minutes and develop a plan. For example, are you headed out of town for a trip?
It’s probably not a bad idea to get a little extra cash out of the ATM BEFORE you leave on the trip because you might not have access to a fee-free ATM where you’re going.
Or maybe you’re still paying a monthly fee for your checking account?
Try shopping around by checking out community banks, credit unions, and online banks who tend to offer better service and lower or no fees for the same services the big banks offer.
Just a little bit of planning goes a long way.
19. Paying high investment fees
You get what you pay for right?
At least it’s wrong in the world of investing.
One of the reasons for this is that most investments are actively managed. This means that the managers are actively trying to pick the next “hot stock” or investment that they believe will perform better than the overall market.
The problem though, is that research has shown, over long periods of time, these attempts to “beat the market” are an exercise in futility because they aren’t grounded in factors that research has shown increase an investor’s expected return.
Don’t believe me?
Just listen to one of the most successful mutual fund managers in history…
All the time and effort people devote to picking the right fund, the hot hand, the great manager, have, in most cases, led to no advantage.
Why is this the case?
One of the main reasons is because of the higher costs associated with actively managed investments. The higher the cost, the more the investment has to outperform the overall market in order to make up for its increased fees.
I believe one of the reasons these types of funds (i.e. high fees, low returns) continue to exist is due to the fact that the majority of financial advisors are paid directly by the investment companies to promote their products.
This is what we call a HUGE conflict of interest, in my opinion, and it causes many so-called advisors to act more like salespeople, instead of true advisors.
Instead of trusting your financial future to a salesperson, get in touch with a fee-only financial advisor who uses what we’ve learned in the field of financial science and combines it with timeless wisdom and principles to build you an investment portfolio, tailored to helping you reach your goals.
It takes one to know one…
As I’ve mentioned in this post and the previous one, one of the reasons I was able to come up with such a long list of dumb things we do with our money is that I made many of these mistakes prior to getting into the field of financial planning.
With that in mind, take heart!
It’s never too late (or too early!) to start making better decisions about your money. Sometimes all you need is someone to help you get started.
Together, we’ll explore whether or not an ongoing advisory relationship makes sense in your situation!