Whether you’re “rolling in dough” or just scraping by, it’s easy to make financial mistakes that can hurt you and your family and cause long-term problems. If you co-sign on a car loan for your ne’er-do-well brother-in-law, you might be making car payments on a car you don’t own.
We all make financial mistakes, but there’s a big difference between wasting $20 at the store and watching your IRA tank in value. Small misstep. Giant losses. It’s really easy to lose your money if you don’t pay attention – close attention – to household finances.
How many of these money mistakes have you made?
You don’t have adequate health insurance. You may have health insurance on the kids, spouse, and yourself, but read the policy limits. Ask yourself if you’re protected in the event of a serious accident in which multiple family members are generating healthcare expenses. No one wants to think about it, but everyone should be prepared for it to avoid gigantic hospital expenses that limit your future options.
You fail to research big purchases. The Internet has made it easy to research what homes cost in this or that community, what computers cost from that retailer over this one, and which car dealership has the lowest prices.
The Internet has empowered us as consumers. Buying a used car? Go online to CarMax® or a similar site to see what’s available. You may have to drive a little further to save $500, but we’re talking about $500 of your hard-earned money. The same advice applies to homes, roofing contractors, or other service providers. If it’s expensive, do some comparison shopping, read user reviews, and become a smarter consumer.
You loan money to friends or family. Do you want to chase around your sister for this month’s payment? How do you ask your best friend why he hasn’t made the quarterly repayment?
Money changes everything. It can ruin family relationships and life-long friendships. And both parties know you won’t take the case to court. If you want to help a family member or friend, give them the loan with no expectation of every being re-paid. You’ll avoid driving a wedge between family members or friends.
You put off long-term investing. You’re only 30. Making a nice paycheck and retirement is decades away, so you buy that pricey car and the jumbo-sized house. However, the key to successful investing for retirement is time. The more time your investment in your future has to grow, the bigger it gets. Start putting away money for tomorrow today – with your next paycheck.
Talk to your Nevada State Bank banker about setting up a low-cost individual retirement account (IRA) to help you prepare for the future.
You miss a credit card payment. Not good, and really simple to avoid. Just pay attention. First, a missed payment may trigger a jump in the interest rates you pay, making your existing debt more expensive to service. In addition, you may get slammed with a late fee – money down the drain.
That missed payment also shows up on your credit report. You can have 25 years of pristine credit, miss one credit card payment, and watch your credit score take a nose dive. And that makes future loans: (1) harder to get; and (2) more expensive to maintain because of higher interest.
Make it a habit to pay that credit card bill as soon as it arrives. If you get to it “later,” it may be too late.
You choose the better-paying job based on salary alone. You have a choice. A well-paying job that won’t be satisfying, or a lesser-paying job that gives your life purpose. You’ll probably move up the ladder faster when you enjoy the work, and stay longer at that job or profession.
You take out a debt consolidation loan without changing habits. If you have debt all over the place, you may decide to take out a consolidation loan, pay off all your credit cards, make a single payment, and have more to spend each month.
On paper, it sounds good. And it might be, unless you don’t change spending habits. Now you have a bunch of plastic with $0 balances, and you’re close to the mall.
Unless you have a lot of will power, you may max out your credit cards again. Now you have to service that consolidation loan on top of your new credit card debt. Unless you change spending habits, debt consolidation is just another loan, and you can never borrow your way out of debt.
You continually play the stock market. If you buy and sell often to try to out-smart the market, chances are you’ll miss the tops, or buy high, and watch that sure-thing sink like a rock as the Wall Street crowd cleans up. Retail investors are usually the last to hear the hot tip. On Wall Street, 100-share stock purchases are called “dumb money,”* and professional stock and bond traders run for the hills as soon as dumb money moves into the market. It’s a sign that prices have been run up as far as they’re going to go.
You pay off cheap debt before expensive debt. Not all debt is equal. Credit card debt is typically expensive debt because the lender (the credit card issuer) takes your word that you’ll pay back what you charge. That’s risky for the lender, so you pay more for credit card debt than for a secured loan. Mortgage debt is backed by real estate – your home – so the cost of borrowing is lower – say 5%. Your student loan may be even lower at 4%.
Pay off the debt with the highest interest rate first. Then, work your way down to the cheapest debt – the debt that costs the least to service. In the long term, you’ll save a lot.
Be smart about your money and pinch every penny until it squeaks. If you don’t take care of your finances, no one else will.
The information provided is presented for general informational purposes only and does not constitute tax, legal or business advice. Any views expressed in this article may not necessarily be those of Nevada State Bank, a division of ZB, N.A.
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