16 Things You Should Never Do With Your Money
Do enough digging and you’ll find that there is possibly an endless list of things you shouldn’t do with your money. From bad habits to decisions based on wishful thinking, some of the bigger missteps can really cost you.
To find out the biggest money mistakes you should avoid, we asked financial experts for their best advice.
Never Cash Your Paycheck Right Away
If you cash your paycheck right away, you might burn through it too quickly.
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“You will most certainly spend it all if you cash your paycheck rather than have your employer directly deposit it into your bank account,” said Barbara Friedberg, a personal finance consultant. “Even better is to automatically transfer a percent of your paycheck into a retirement investment account and direct-deposit the remainder into a bank account.”
One advantage of having a workplace retirement plan, such as a 401(k), is that money is automatically deducted from your pay and invested. You don’t see it, so you won’t spend it. You can use a budgeting template to get the most mileage out of your paycheck.
Never Fall For ‘Special’ Finance Deals You Can’t Afford
Promotional finance offers that provide zero or low interest rates on a big purchase might sound like a great deal — until you wind up paying more than you expected. That’s what happened to Grayson Bell, founder of personal finance website Debt Roundup.
“Don’t finance a new vehicle, or watercraft in my case, based on the low promotional monthly payment,” he said. “I financed a new $10,000 Jet Ski with no money down and no real way to pay for it based on a radio ad promoting a super low $69 per month payment. What I didn’t read was the rate was only for two years, then it changes to include retroactive interest based on the loan amount.
“Those financing deals can ruin you if you’re only looking at the monthly payment,” he continued. “Go through the math and read all of the fine print. They get you in with the low monthly payments, but keep you paying for much longer than you anticipated.”
Never Co-Sign a Loan You Can’t Afford
Michelle Schroeder-Gardner of personal finance blog Making Sense of Cents said you should never co-sign on a loan for someone unless you have the means to pay it back fully.
“The fact is that you never know if the person will be able to pay every single payment, so it’s best to prepare yourself,” she said.
Never Live Above Your Means
One of the tenets of building wealth is to live below your means. Saving and investing should be your priorities so you can help pay for your children’s college costs and live comfortably in retirement, said Cathy Curtis, a certified financial planner and author of “The Happiness Spreadsheet: How To Create A Budget Aligned with Your Values, Beliefs and Ideals.”
Never Rely Only on Cash When Traveling
Sure, carrying and using cash is a good alternative to running up credit card bills. But Curtis suggested using traveler’s checks or credit cards as an alternative to cash.
Holding substantial cash when you’re traveling can invite unfortunate situations. You could lose it or be a victim of theft, which is not uncommon in certain tourist areas.
Never Donate Money Over the Phone
Phone solicitations often involve raising money for authentic causes and organizations; unfortunately, they’re also an easy way for con artists to scam well-meaning donors.
To be safe, never give out your credit card number over the phone. Curtis advises to instead ask the solicitor to mail you the information. This way you can research the organization and verify that it’s legitimate.
Never Spend Money on Gifts That No One Needs
Yes, those end of summer sales at your favorite stores can be quite enticing when everything is practically 75% off. But, stocking up on bath bombs, beach towels and other discounted fare can be just plain wasteful. A crazy sale is never crazy enough to justify spending money on something you don’t really need — and possibly don’t really want.
Never Shop When You’re Emotional
It’s best to avoid shopping when you’re feeling down because you might be tempted to spend more in order to feel better — hence the rise of the term “retail therapy.
”You should also steer clear of pushy salespeople; don’t let them flatter you into buying something you can’t afford or don’t quite feel comfortable about," Curtis said. "You might be seeking positive reinforcement, but getting it from a clerk whose primary interest is in making a sale isn’t a healthy way to get it."
There are other ways to feel good about yourself without shelling out cash. Make decisions based on your needs and your budget, Curtis said.
Never Opt Out of Your 401(k)
Opting out of your 401(k) plan can be tempting when you’re low on funds, but according to Esther Kim Trapadoux, it’s one of the biggest mistakes you can make.
Many companies use automatic enrollment as a default for employees who don’t elect to participate in the 401(k) plan. Make sure you choose to enroll in the plan and increase the amount you contribute above the auto-enrollment amount. Then, sign up for your plan’s automatic escalation feature, which will increase your contribution percentage by an amount you specify each year.
Never Put All Your Money in Illiquid Investments
Many investment products lock up your money, which limits your access to it, said Daniel Zajac, CFP and partner at Simone Zajac Wealth Management Group.
“You should be keenly aware of when and how you can get to your money, even more so if you make the decision to put a large portion of your assets in something that restricts access,” he said.
Individual stocks, mutual funds and exchange-traded funds have a high degree of liquidity. By contrast, illiquid investments are those that cannot be sold quickly without incurring a significant loss in value. Examples include nontraded real estate investment trusts, some collectibles and more.
Never Buy Too Much Company Stock
Owning company stock can be a valuable addition to your portfolio, Zajac said, but don’t put too much of your money in that investment. If your company experiences a downturn, you could lose your investment and your job in one fell swoop. A good rule of thumb is to limit your company stock exposure to 10% of your total net worth, he said.
Never Buy a House Without Looking At the Full Cost
Homeownership isn’t just about the mortgage payment. In fact, there are many costs to owning a home that might not be apparent before you buy.
“People tend to only look at the payment amount and not consider the other costs that come with homeownership, such as needed repairs and ongoing maintenance, differing utility bills than their previous place and possible tax increases,” said Josh Elledge of personal finance website SavingsAngel.
“Make sure that you factor in those costs above the monthly mortgage payments,” he continued. “Otherwise, one especially hot summer or a minor accident backing out of the garage, and you’re piling up additional debt on a credit card to get by.”
Never Spend Money on Things You Don’t Really Use
You might be tempted to buy certain items that promise to save you money or make some tasks easier. But if you end up not using those items, it’s just wasted money.
“It’s mind-boggling the amount of money people waste on things they neither need nor use,” Elledge said. “Whether it’s buying a fancy phone they have no idea how to use, buying an extended warranty on a product that already comes with a warranty, or even purchasing groceries they forgot are sitting in the cupboard at home, it’s wasteful spending.”
Instead, Elledge suggested sticking to buying items you actually need and use on a daily basis, and “you may find a lot more money in your monthly budget.”
Never Invest Money You Can’t Afford To Lose
Most smart wealth-building strategies include investing as a way to grow your money, but it’s a risk you need to be able to afford. Be sure to seek out expert advice if you’re new to investing.
“Every investment carries a level of risk, and you should be prepared to face the worst-case scenario every time,” said Pauline Paquin, personal finance blogger. “Do not invest money that would compromise your financial well being if you lost it … One financial mistake can be devastating.”
Never Buy an Investment That Sounds Too Good To Be True
If an investment seems like it’s too good to be true, beware, said Joseph Carbone, CFP, founder and wealth advisor at Focus Planning Group.
“If it sounds boring, then it’s probably a good investment.”
Often, those too-good-to-be-true investments are expensive and illiquid, he said. Staple investments — such as stocks, bonds and certificates of deposit — might be better performers.
Never Get Carried Away on Deals Websites
Just like with a brick-and-mortar discount store, the prices on deals websites can be addicting. But you might spend more than you can afford and end up with a bunch of stuff you really don’t need.
“Deals websites like Groupon can be a great way to save money, as long as you don’t become addicted,” said Sean Cooper, financial expert and author of “Burn Your Mortgage: A Simple, Powerful Path to Financial Freedom.”
“Similar to coupons, deal websites can lead to overspending on stuff you may not need … To avoid the temptation to spend, only visit deals websites for stuff you’re already planning to buy.”
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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