One of the things we all do at one time or another in life is to make a really dumb money decision. I’m not just saying that you have done it. I’m saying we all have done things you should never do, including “moi”.
A while back I wrote about 14 things you should never, ever do with your money and I meant every word of it.
Most of the things on that list would put a serious dent in your wallet. But every day, I can’t help but notice that people continue to fall victim to pitfalls and traps with their money even though in many cases it’s because they just wanted to help someone or they were badly informed about something. Good motives can sometimes just backfire on you.
“Let Me Give You Some Advice”, He Said!
You already know that talk is cheap and sometimes when you make a money decision, it is influenced by something that someone told you or you have heard about it being said. Well, talk may be cheap, but making a dumb money decision is never cheap. So many times in life you’re told when it comes to your money, do this, don’t do that, do this instead. It makes the average person confused and fearful when he gets an overload of “advice” especially when that advice may be coming from someone who is at best uninformed or at worst trying to get your money from you!
The Story from Hell and Its Financial Consequences
Do you remember my own story of how I was completely duped by my former brother-in-law and the fabulous stock “scam” he led me into that wound up costing me ten thousand dollars? That falls under the adage, “If it sounds too good to be true, it probably is”.
As embarrassing and costly as that was, it did teach me a good lesson and I have avoided doing that kind of thing ever again. The best teacher in life is usually a bad experience, but today I want to give you some more really practical advice so that you won’t have to learn these lessons the way I did…in the school of hard knocks.
So get ready because now I am going to give you…
6 More Things That You Should Never, Ever Do with Your Money
1. Never Co-sign Anyone’s Loan
Don’t you think if somebody needs you to co-sign their loan that there might just be a problem here? What it really means is that the financial institution lending the money doesn’t want to give that person a loan on their own because they don’t qualify or they have an unreliable history. So if they don’t qualify…why are you co-signing and thus guaranteeing any loans? When you co-sign a loan, it becomes your loan, and now you’re personally responsible for it.
If the person who’s supposed to be making the payments isn’t making the payments, you will be the one that has to do it. And, you may not even know about it until it’s too late. It will cost you money and can ruin your credit score too. So, it’s never ever OK and under no circumstances should you ever co-sign a loan!
2. Never Take a Loan from Your 401(k)
If you are honestly in a financial bind and you see absolutely no way out, you may be very tempted to look at your retirement plan or 401(k) plan to bail out your financial problems. This is never a good idea and here’s why.
401(k) plans are protected by law and even if you lose everything else—your home, your car, etc.—they are protected even against declaring bankruptcy. Bankruptcy may mean you have to start over in many areas of your life and that is very tough, but it can be and is done every day by good people who have had something unfortunate happen. It could be from job loss, illness, or an uninsured disaster, but whatever it is, you can recover in time.
If you become so desperate that you actually borrow from a 401(k), your money would’ve been protected in the 401(k) even after you filed your bankruptcy. Taking your retirement money would never be as easy to recover from simply because to replace that money would take the geometric compounding of years and years. It would probably mean another huge problem down the financial road you will be facing when you retire, if you are ever able to retire! So, you are never, ever to do that. Your 401(k) is a lifeline to retirement that you need even if you mess up everything else. Your financial future still has a chance to recover in bankruptcy, but losing your retirement plan may jeopardize your future for good!
3. Never Ignore Your Student Loans
Student loans are the most dangerous loans out there for a couple of important reasons. First, they cannot be discharged in bankruptcy so you are never to miss a payment on a student loan. The loan has to be a priority.
Secondly, when you are trying to establish your finances and build your credit score, student loans are often the most significant measure of your credit worthiness simply because you may have little else to be considered. You probably have little or no credit or loan history other than your student loans. You only get one chance to make a good first impression on any credit decision, so never ever ignore those student loans!
4. Never Carry Around Wads of Cash
Back in my youth, it was very common to get paid at work and immediately run to cash out your paycheck and carry it around in your pocket everywhere you went. Of course, that was way before the onslaught of ATMs, direct deposit, and credit cards that now make carrying a lot of cash totally unnecessary. But believe it or not, if you stop by any bank on a Friday afternoon, you will see the line forming for check cashing, sometimes going out the door!
Carrying cash is very risky. You can lose it, be very tempted to be fast and loose with it, or even get robbed because someone has seen you with a bankroll. You also can’t earn anything from carrying around cash in your pocket like interest, can you? A roll of cash looks impressive to some but is totally unadvised so don’t ever, ever do it.
5. Never Buy Just Because It’s “On Sale”
I spent almost every day of my working life in some form of retail environment and I can tell you from my own experience that getting a “good deal” and getting it “on sale” often have little to do with each other! Retailers are sort of like magicians and use deception, smoke and mirrors, and anything else they have to get you to believe you just got the deal of the year.
Consider the case of two television sets: both are $500, but one is marked down from $1,000. Which one do you, a reasonable person, buy?
A reasonable person would more than likely check and see which set got a better rating in Consumer Reports, do the homework, and buy that one. But, statistics show that most people buy the one that’s “on sale”. In fact, even people who would never have spent $500 on a television set often will when they see it’s discounted and feel they are “saving” hundreds of dollars—simply because it’s discounted, they feel like they got a deal!
In reality, $500 is $500. If you wouldn’t normally spend that much on a television (or any product, for that matter), you should never, ever do it. We easily fall for the retailer’s skill to get us to buy things they want us to buy. Keep that in mind next time you hit the shopping mall.
Before you pull out your money to splurge at a sale, evaluate whether the product, be it a television or a toaster, is worth the price in enjoyment (intrinsic value). Consider how often you’ll use it, for instance, and whether you can get something of similar quality for less.
6. Never Spend in Retaliation
This one is a serious “hot mess”. You don’t need it. You don’t want it. But dammit, no one is going to tell you that you can’t have it. Psychologists call it “POP” spending and that stands for “pissed-off purchases”. This phenomena has resulted in spending of over $400 billion in purchases a year.
Often this comes from difficult marital situations or “financial infidelity spending” as it is known when one spouse hides their spending from the other. Such purchases can also result from a fight with your boss, mother, or a friend, but as good as retaliatory spending may feel, it can do real damage to your financial health. Just take a deep breath, count to 10 and walk away so that you never, ever spend out of anger!
You work hard for your money, so you need to protect it. If you don’t, you are almost never going to get to the promised land. That land is the place where you don’t worry about money, enjoy life, and are able to spend more time with family and friends without feeling guilty when you do. For some it’s easy and for others it’s not, and one of the reasons for that is ignoring the dangers of making poor spending decisions. Is that you?
What are some of the bad habits you have with your money and spending? What have you done to overcome those habits and correct your course to financial security?