The Dumbest Things You Can Do With Your Money
There’s smart money, and then there’s… not smart money.
Even smart people do some decidedly dumb things when it comes to their personal finances.
These are some of the biggest deadly sins when it comes to your finances. Don’t worry about hitting the confessional booth over these — just get your house in order or pay the price.
Not saving is at the top of this list for two reasons: First, it’s so common. Second, it’s so deadly to your finances.
If you don’t have money saved, you’re going to have to go into debt when you experience a financial emergency. That might be as mundane as having to replace some tires on your car. In a best case scenario, you might be able to borrow some money from friends or family. In a worst-case scenario you’re going to be shelling out for a payday loan or a car title loan, which often come with triple-digit APR.
It’s important to put aside a little bit of what you earn every month into your savings — that can be as low as 10 percent or as high as 30 percent. The main thing is that you be consistent about it. You need to have six months living expenses in that savings account.
Then it’s time to start thinking about putting your savings into something with a bit more growth, like a retirement account or an investment account. Which brings us to our next deadly financial sin.
Not Taking Free Money
You’re maxing out your matched 401(k) contribution, right? If not, then you must hate free money.
A matching 401(k) contribution is part of your total compensation package. That includes your annual salary as well as all your fringe benefits. If your employer is willing to match your contributions to a 401(k) up to a certain amount, you need to be smart enough to take it. Anything else is just leaving money on the table — and trust us, young people: you will regret it later.
There are other ways you might not be taking free money. For example, if you have your six-months emergency savings fund maxed out, you need to start putting that money into a tax-advantaged retirement or investment account.
It’s worth throwing down a couple hundred dollars to a financial counselor who can guide you through that process, or signing up with a brokerage account who have counseling included.
Here’s a protip: If you have a membership at a credit union, you might have this included in your membership.
Cable television isn’t just expensive. It’s a time suck.
When you have subscription services, you tend to sit down with something specific in mind that you want to watch.
On the other hand, when you have 5,000 channels, you tend to rotate through them in search of something to occupy your time with.
Cut the cord, save money and use your time more wisely.
An Expensive Education With Low Market Value
A college education might be overrated, especially if you’re going to school for something that will have you making leaves in latte foam for a living while carrying tons of debt.
Your total student loan debt shouldn’t be more than what you’re going to earn your first year out of school. That means you can spend more on a business degree than you would an anthropology degree.
Does that mean that higher learning and culture are reserved only for the well-to-do? No. It just means that if you want to spend money on education without much of a market value (notice that we didn’t say “useless”), you can do that on a pay-as-you-go basis by taking courses once you’re self-sufficient.
Or you can do what people of modest means have done since the days of the Gutenberg Bible: Be content to learn on your own for the sake of knowledge, rather than academic accolades.
Living Beyond Your Means
In the 21st Century, everyone wants to live in the most fashionable neighborhoods, going to the best coffee shops, buying rare artifacts from the past while driving an environmentally responsible car.
Unfortunately, that’s just not within the means of as many people as want it. One of the first places it behooves you to look at living within your means? Your rent.
“But I have the cheapest apartment I can afford in this city and I’m still having trouble making ends meet,” you might say.
Well, maybe you can’t afford to live in that city. Or any city for that matter.
If you’re living in San Francisco and having trouble making ends meet (and really, who isn’t?) maybe it’s time to start looking at the housing market in St. Louis instead.
Not Buying in Bulk
A membership to a wholesale club can easily pay for itself. You simply have to look at the goods you’re eating a lot of that you can purchase from a wholesale club and use before they expire.
When it comes to non-perishable goods like toilet paper or canned goods, this is just a no brainer.
Assuming that you eat one bulk container of canned tuna in an entire year, it will always make more sense to buy that in bulk than it will to buy it as you go.
Best of all: A lot of times, wholesale clubs allow you to bring a friend along with you, so you can split the cost with your designated club buddy.
Buying New Cars
There’s no two ways about it: New cars are a total waste of money.
The second the wheels touch the road and the pink slip is in your pocket, the car is worth half what you paid for it on the resale market. Under absolutely no circumstances should you finance a new car. That’s just adding the insult of interest to the injury of a rapidly depreciating asset.
The best way to buy a car is to buy a previously owned car with low mileage in cash. One way to finance that is to keep paying a monthly car payment into a savings account for use to buy a "new-to-you" car when your current car finally hits the skids.
Once you have a new (used) car, take care of it, but drive it until the wheels fall off. It’s just a way to get from one place to another.
Everyone needs to budget and everyone needs to budget to live within their means. No matter how much money you have, you have to have a budget.
So if you’ve never done it before, how do you budget?
A great way to start is to simply track how much you spend on a monthly basis. There are free apps that will sync up with your bank account and do this for you. You can see how much you spend on rent, bills, groceries, gas and sundries. That will give you a baseline to start from.
From there, you might even want to look at where you can begin making immediate cuts to your budget. For example, maybe you’re spending way more money eating out than you thought you were, so there’s a place to start saving money.
There’s more art than science to this and don’t be surprised if you spend the first six months of budgeting making constant adjustments before you get it down cold. But you’ll find it much more possible to live within your means.
Paying Avoidable Fees
ATM fees and overdraft fees. No matter what you’re paying for them on an annual basis, it’s too much.
In fact, you should go through your statements from the last year, add up everything that’s in them that’s a totally avoidable fee, then consider what you would have rather spend that money on.
Chances are solid that you’ll agree you can find at least one thing you would have rather spend that money on.
Carrying Credit Card Balances
Credit cards aren’t money. They’re loans. And loans cost money in the form of interest. There’s no reason to carry a balance on a credit card. In fact, before you even start focusing big time on savings, you should throw money at getting out of credit card debt.
Much like avoidable fees, if you look at what you’re paying for your credit card balances on an annual basis, you’re going to find that there’s something — anything — that you wish you had spent the money on instead.
Following these tips won’t just help you to live within your means — they’ll also help you to live more richly with the means you have. That’s something that’s worth its weight in gold.