(in my opinion, as always).
1. They Put Too Much Faith in Their Brokers/Financial Planners/etc. As the saying goes, nobody cares as much about your money as you do. If someone is working for you (i.e. for a commission) they may conciously or unconcsiouly not have your best interests at heart 100% of the time. The recent economic crises made this lesson clear. While there are plenty of wonderful financial professionals, keep in mind that at the end of the day it is your money and they work for you. In other words, it is your retirement or your kid’s college funds at stake. Ask the necessary questions and pay attention.
2. They Make Family Finances the Job of One Family Member - I see in too many families a situation where only one person is in charge of finances for the entire couple/family. That person usually is stressed out by the role. That person also often gets upset when the other family member(s) spend too much money. Of course how can the other spouse/etc., know what they should be spending if they do not know the complete family financial picture? The more people on board, the easier it is to budget and to save money (and the more you can insulate yourself from stress as an individual). Few things are more costly than a divorce and it is said that nothing causes more divorces than money arguments. If you’re in a relationship, try to keep this in mind.
3. They Buy Depreciating Items - There are necessities that will only decrease in value (cars generally fit in this category, as do clothes). Even if you shop frugally for these items, you know you will likely lose money on the deal and you accept that because it is a necessity. But then there are other items such as blue ray discs. You know these items will likely only decrease in value and that you may only watch them once ($20.00 per viewing). Instead of “wasting” money on these types of items perhaps instead try to focus on putting money into possibly (hopefully?) appreciable assets like investment vehicles, a side-business, etc.
4. They Put Off Paying Down Debt to ”Invest” - I often invest monies even though I have six figures in student loan debt at a 6.8% interest rate. Do I really believe my investments will beat 6.8%? Probably not, particularly with things the way they are today. So the question then is, what am I doing? Too often people (like me) get satisfied making the minimum payments on long-term debts or bad credit loan, and end up way overpaying in the long run. While the heart may be in the right place, where is the mind???
5. They Try to Time the Market – Unless You’re Warren Buffet, you will likely not succeed in timing a market. Period.
6. They Believe Credit Cards Have No Effect on Their Spending Habits - Study after study aparently shows that people spend more with credit cards than they would with cash. This must be a very subconscious affect, because I for years believed I was immune to this phenomenon. I’m probably not… and you’re probably not either.
7. They Believe Student Loan Debt Is Always “Worth the Investment” - Sometimes it is not worth it to pursue more education. Not all student loan debt will equal a high paying job. Even though I make more money then I would if I had not gone to law school, I also gave up largely three years of full earning potential and will be spending over $1,000 per month for ten years to pay it all back. Whether law school will be worth it for me long term remains to be seen, but I do know that I wish I had thought more about such things before taking the plunge.
8. They Buy Furniture With No Money Down - I have some smart friends who will do this because it will be “0% down for the first six months, or one year, etc”. I think it’s playing with fire.
9. They Will Pay Someone Else to do Things They are Capable of Doing Themselves - Now that Mrs. BP and I have a house, there are times when I wish I could call in someone to scrape all the wallpaper off the second bedroom (for instance). To be sure some people make enough money that it would make sense for them to hire out such activities. For the average person, however, the monies saved by doing these items yourself are worth it. Now if only I can figure out how to repair the garage roof by myself.
10. They Avoid Looking at Their Complete Financial Picture - It’s like when you go off your diet and start eating unhealthy: you start avoiding the scale. When things aren’t going great for us financially, we will try to avoid looking at just how much debt we have, or how much we are paying each month in bills. This practice solves nothing and ignorance isn’t bliss when you can’t keep up with your bills.
BONUS: 11. They Refuse to Negotiate - Mrs. BP and I are paying $19.99 per month for cable internet. If we hadn’t negotiated this figure we would be paying $29.99. It can’t hurt to ask.
What are some stupid financial decisions you have made, despite your intelligence?
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Excellent tips BP! I like the 4th one – putting off paying debt in order to invest! Even Buffett would be stumped to beat 17% APR that credit cards charge!
It’s an easy decision when deciding between 17% credit card debt and investing. But what about when deciding between a 5% auto loan or 6.9% tax deductible home improvement loan and investing? This is something I teter back and forth on between the months. One month I think lets get rid of debt and throw all our extra income at it. The next month I think we can earn a higher return and throw all extra income towards investments.
I’ve done 6, 8 and 9.
6 is likely correct but I love the cash back. Fact is, we do think out any purchase over $50 pretty thoroughly. Even over $25.
8 I did buying our last house which needed a new washer and dryer. Had them paid off in 2.5 months.
9 Mrs. SPF is pregnant (in case you missed it), my back is wonky and we have 2 rooms that need painting (our master and the baby-to-be). Given the walls i’m building in the basement, the drywall sanding still left over from our ecoEnergy retrofit and the plethora of outdoor projects (build planter boxes for veg gardens, move 2 fences, build a shed, general landscaping) I just don’t know if we’ll get these rooms painted. It is likely time to outsource even though we can DIY.
re: #4 this is a tough one for us.
Our mortgage is 3.64%, a personal loan we have is %3 and student loans (interest is partially tax deductible) are 5.75% and 5%. The choice to invest vs repay is a hard one.
I was shocked this weekend by my FIL, who is a really smart guy and works with finances and numbers, plus tends to be risk averse rather than risk seeking (unlike my dad who plays the stock market as a hobby), emailed to ask us for advice on individual stock tips. He said he would also ask his broker. We sent him the Bogleheads book to investing.
Re: #4, if you have debt of 0-2% it totally makes sense to invest first. Similarly, it makes sense to save for retirement in a tax-advantaged account even if you have a mortgage to pay off. Both for diversification and because it’s good to get in the habit of saving for retirement, (and markets might have higher returns once you factor in the tax advantage).
I disagree that all of these are “stupid” …
#4 – too many people, especially young PF bloggers are so focused on the immediate debt that they fail to see the larger advantage of investing *while* they pay off debt, especially investing in retirement. I have a post coming that shows exactly how some people lose out on $30k worth of retirement interest to get the immediate “feel good” of saving $6k in student loan interest. “Always pay off debt first” is NOT the best advice, even if most of the PF blogging world thinks it is.
#6 – I spend MORE using cash than using cards. With cards, I have receipts that I keep and track. With cash it’s too easy to spend a couple $ here and a couple $ there and before you know it I’ve spent $20 on nothing.
#8 – If you buy furniture (or appliances or anything) with a 0-down/0% plan and are smart about saving the money you need to pay it off before the grace period is over, then you will come out ahead. The stupidity is not in buying using this plan – it’s in not using the plan to it’s advantage.
#9 – Time vs. stress vs. cost. “Hiring out is stupid” is another one of those absolutest statements that makes me insane.
I have someone come in 2x a month to deep clean my house and I pay $125 for it each time. I work a full time job, plus own a side biz that takes 20-30 hours of my time each week. I have a 4 hour daily commute (bus, train, walk – reverse it in the evening). I tried to do it all myself and wound up at the end of a busy month huddled in the corner of the sofa crying because I couldn’t do it all. Is it worth it to my mental health to pay someone else to clean my house? Damn straight.
Some things are less than optimal for most people, I agree. But absolutest statements are never true.
#8–And, I did not pay it off before the year was up. But, I was in grad school and needed a refrigerator. So, I don’t regret it. I took a chance.
I know an attorney who takes absolutely any personal property instead of cash. He now owns timber acreage all over TN and north AL. That was the future and retirement investment.
It was Christmas Eve. Okay, I worried about Christmas Eve a week ahead of time. I wanted the house clean for Christmas. I figured how much I could make and how much it cost for someone to make my house spotless from top to bottom on the 23rd. I ended up making $1400.00 dollars (on 23rd and 24th) and paid $75 for someone to clean the whole house–1989 figures. I made a good decision that I cannot regret. It was a mental health issue.lol Oh, financial issue, too.
Then, I awoke Christmas Day with nothing to wear for the dinner event I was attending. Since sewing is not stressful for me and calms me down. I cut and sewed a three-piece outfit to wear that night and received rave reviews. It was still a mental health issue. One time I paid someone; the next day, I did the job of sewing myself. I refused to buy an outfit that I could make. To top it all off, the jacket was made from an old silk curtain stuffed in the rafters at an estate sale.
So, it all depends.
Trade the roof work for legal work or get a friend to help you and you return the favor and help him with something.
“one time I paid someone” does not belong in the last long paragraph.
To be honest, I’d be more inclined to try to fix the garage roof myself than I would be to scrape wallpaper. It may be that you don’t have the right tools for the roofing job, so in the end it may be more cost effective to pay someone who does, but I’m pretty sure you can figure it out – it’s not rocket science. Look on the internet. You should be able to find videos. Scraping wallpaper is brutal, and if you can save in one area (the roof), maybe you can afford to splurge in another (the wallpaper).
Truth is, we’d probably live with the wallpaper until we could afford to pay somebody else to take it down – That’s how unpleasant we find the task.
Number 3 is so true. Cars the perfect example.
@kh
“I spend MORE using cash than using cards.”
I used to think this, too. I spent more when I had cash because I was using both cards and cash, and the cash would just sort of “disappear”. But if you switch to paying in all cash, I would bet my bottom dollar you’d see a change in your spending habits after a couple of months. Cash doesn’t “disappear” like that when you stop using cards altogether.
The average person pays more with their cc than cash but some pay more with cash than cc. Or you can do what I do, take the cash out and when you spend the money on the cc put the cash back into the savings envelope. I stick to my budget, using cash or credit cards.
My friends have called me the “Craigslist Queen” so perhaps I have enough credibility to post here.
Buy furniture on craigslist. There is some really nice stuff out there. Inspect. Ask questions. Make friends with a guy with a truck. Buy him a pizza. Or get all your stuff at one time, rent a Uhaul and suck it up for a Saturday of hellish but LOW COST purchasing and moving.
1) Educate yourself. Know what you’re getting yourself into. Create an amortization table (free calculators online) for student loan pay off and hypothetical investment scenarios.
2) Finances are a team effort. A family is a team. Get everyone in the same boat or risk dividing your household. Also, get a chicken and a veggie garden (my next venture).
3) Buy depreciating items second hand. Use craigslist. Pay cash. Get the seller to sign a receipt, which can be a cocktail napkin. It’s legally binding, and you need to be self-disciplined about record keeping or you will ultimately fail the cheap-o game. The seller is also less likely to lie to your face. This is a consumer culture, you don’t need to fall into the debt trap if you don’t have to. Sometimes you can resell the stuff on craigslist for more than you paid for it…
Look for monthly city auctions.
4) See #1. I personally believe in investing in your retirement. Think IRA. It’s the most long-term investment, and we know that by the time we’re old many of our com-padres will be working until they die.
5) I agree.
6) Try Dave Ramsey. Cash based envelope system. Pay off credit cards EVERY month. Many of them have monthly auto-debit options nowadays.
7) I agree. *sigh* Consumer debtors have some rights and legal protections. Student loan debtors do not. Don’t get me started.
9) Anything to do with WATER or FIRE I suggest you OUTSOURCE. I made an expensive shower plumbing mistake last Summer. Man oh man, I learned my lesson! Roof = OUTSOURCE. Electrical = OUTSOURCE. Load bearing project (are you an engineer)= OUTSOURCE. Work hard but remember you’re not MacGyver (Remember, him? So awesome.). Paint = ok. Wallpaper = ok, suck it up and get a wallpaper steamer from craigslist. Buy materials from Habitat for Humanity Warehouse stores. Home Depot has a very liberal return policy.
Take care of your car.
Explore home office options to reduce travel costs, and possible write off of any business expenses.
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