The 50 Biggest Money Mistakes Household CEOs Make

As this penny illustrates, even the United States Mint occasionally makes money mistakes.

I’m not ashamed to admit I’ve made more than a few mistakes in my lifetime. After all, everybody screws up occasionally; for us humans, mistakes come with the territory.

For example, I remember the time I decided it would be great fun to play Wii golf for eight consecutive hours. So I did.

Unfortunately for me, my middle-aged left shoulder vehemently disagreed — after the fact, of course — and so I spent the next week popping acetaminophen tablets like they were M&Ms. I know.

It can be even more costly when we make mistakes managing our personal finances; I know I still make them from time to time.

Here are 50 of the biggest financial faux pas household CEOs make. How many of these apply to you?

1. Being impatient. People of modest means should understand two important facts: 1) we can’t have it all at once; and 2) saving money takes time – sometimes lots of it.

2. Failing to read contracts before signing on the dotted line.

3. Using payday loans to cover temporary financial shortfalls.

4. Giving your kids everything they desire. It’s hard to get a feel for the value of a dollar when you grow up never wanting for anything.

5. Signing your tax returns without reviewing them — even when they’re done by a tax professional.

6. Buying a new car and selling it after only a few years. Buying new cars is costly because they can lose upwards of half their value by the time they are three years old.

7. Not doing your research before purchasing extended warranties.

8. Going into debt to purchase things that will decrease in value.

9. Maintaining memberships with monthly payments even though you no longer take advantage of them.

10. Using credit card convenience checks that fill your mailbox. You can reduce the temptation by stopping those dubious credit card offers and other annoying junk mail.

11. Failing to track your income and expenses.

12. Not saving part of your income for retirement. Try saving at least 10 percent from every paycheck; it’s never too late to start.

13. Keeping cash in a low-interest earning savings account despite carrying a high-interest credit card balance. Use any savings over and above that needed for emergencies — and riding out a potential job loss — to pay off credit card debt.

14. Loaning money to friends and relatives.

15. Taking a loan from your 401(k) retirement fund to pay for current expenses.

16. Failing to negotiate your first salary. It’s the most important salary negotiation you’ll ever have simply because all of your future salary increases are ultimately based upon it.

17. Investing without an exit strategy. Without one, it’s tough to recognize the right time to cut your losses — or take profits off the table.

18. Buying more house than you need. A bigger house means more taxes, more interest, more maintenance, and more furniture. (Not to mention more housekeeping too.)

19. Keeping a term life insurance policy longer than necessary. Life insurance is important when you have a family that depends on your income; for most folks, it’s only necessary until their youngest child has left the nest, or finished college.

20. Failing to maintain an emergency fund — or tapping your emergency fund for non-emergencies.

21.  Not increasing your 401(k) contributions every time you get a raise.

22. Relying on Social Security as your primary source of retirement income.

23. Keeping your spouse in the dark regarding the household finances. Knowledge is power; allowing one spouse to handle all the household bills and investments in a vacuum can backfire in more ways than one.

24. Failing to faithfully maintain your car. By following your car’s maintenance schedule and paying a little up front, you’ll reduce the risk of encountering more costly major issues down the road.

25. Running up charges on your credit card that you can’t pay off in full at the end of each month.

26. Paying the minimum on your credit card bills each month. Here’s a credit card fact: making minimum payments each month will ensure you pay the maximum interest.

27. Buying on impulse — or failing to shop around for the best deals.

28. Carrying comprehensive and collision insurance on older cars; typically, the two combined account for almost half of the average auto insurance premium. Depending on the vehicle, you may be better off only carrying liability insurance.

29. Spending a dollar to save a dime. One of the biggest examples of this is people who end up spending more than they save by driving miles out their way in order to buy gasoline that’s a few cents per gallon cheaper.

30. Assuming past performance guarantees future results.

31. Succumbing to high-pressure sales pitches and cold calls. Be firm and never commit yourself to any type of hard sell without properly researching your available alternatives.

32. Using a credit card to withdraw cash from an ATM machine. Such transactions typically come with onerous cash advance fees. Even worse, there’s no grace period – so interest begins accruing immediately.

33. Failing to take advantage of coupons and internet promotional codes as often as possible.

34. Failing to automate your finances (Part 1). Automatic paycheck deductions not only help ensure you’ll pay yourself first, they’re an easy and painless way to save for retirement.

35. Failing to automate your finances (Part 2). Prepaying your utility bills, the mortgage and other loans online helps eliminate late fees and postage.

36. Thinking you can ignore your monthly statements because you pay your bills online. Automating your finances is a smart money management technique – but putting them on autopilot isn’t.

37. Throwing away perfectly good food. Believe it or not, I save $1400 annually by eating leftovers.

38. Overpaying for car insurance by keeping a low deductible. Remember, car insurance isn’t intended to cover minor fender benders – it’s designed to protect you from losses you can’t afford to replace.

39. Marrying the wrong person. When it comes to money management philosophy, it helps to be on the same page as your mate. In fact, financial compatibility is a key predictor of whether a relationship will survive long term.

40. Not fully understanding stocks and other financial instruments before investing in them.

41. Refusing to treat your household like a business.

42. Neglecting to have a plan (such as a will or trust) that governs how your affairs will be managed after you become unable to manage them, whether due to death or disability.

43. Failing to review and update your savings goals annually.

44. Underestimating the the power of saying “no.” It’s the best way of short-circuiting the urge to keep up with the Joneses.

45. Not taking advantage of your employer’s flexible spending account. These accounts not only reduce your tax liability, but they also act as a de facto quasi-savings plan.

46. Failing to optimize your 401(k) account every year. Diversifying and balancing your allocations will minimize your losses in the event of a major market downturn.

47. Spending more than you earn.

48. Putting aside money for your kids’ college educations before taking care of your own retirement needs.

49. Cosigning loans — for anyone.

50. Having a defeatist attitude. Because no matter how bad things get, those who are determined to succeed know that, over the long run, they control their own destiny. (Trust me: that even applies when you’re playing Wii golf.)

Photo Credit: Pic 2 Fly



Comments

  1. 1

    says

    This is a really great list. So true. Spending more than you earn seems to be a national pastime in America and will lead to continued heartache unless people make a major turnaround. People need to understand that your insurance for wealth comes from living well below your means and saving.

    • 2

      says

      I’m attempting to spend less than I earn from the start by not taking out student loans.

      I am thankful my parents didn’t give me everything really easy. And I’m glad they talked about money a lot. I’m sure I will still make my own mistakes but hopefully less than I would have without their input.
      Chase

      • 3

        Len Penzo says

        Good for you, Chase. And I’m following your parents’ model. My kids have to work for (or at least chip in a portion for) almost everything they really want.

        We also talk about money with them all the time. Painful as it is to watch, we also let our kids make their own financial mistakes now, when the consequences are relatively minor.

        Still, it’s no guarantee our kids will make the right decisions when they become adults. In the end, us parents can only lead by example.

    • 5

      Len Penzo says

      I didn’t list them in any specific order, Sudip. But, yeah, that is arguably the most important one, isn’t it?

  2. 6

    says

    hey, Len, hope you got your health insurance paid up because it looks like you’re going to need it sooner than you thought. the old folks home is already preparing a padded room for ya. look at 32 and 42 on your list. :) have a good day.

    • 7

      Len Penzo says

      That one was so important I decided to list it twice. ;-)

      Good catch, Griper! I’ll have to look back at one of my previous drafts and see what happened to the original #42.

      I really need to find a new editor; the current guy who has the position is falling down on the job.

      I tell you what … If any readers would like to make their own “biggest money mistake” suggestion to replace my duplicate at #42, leave ‘em here in the comment section and I’ll pick the best one for insertion in the updated post.

      • 8

        Volfram says

        “Buy stuff to help you look rich, instead of saving money so you can be rich.”

        My best friend and I are on opposite sides of this particular coin. He makes $5-10K a year more than I do, and the first thing he decided to do when he found out he had a second kid on the way and was moving to Kansas was… buy a brand new car that costs more than half his annual salary. Not take-home pay, salary. Did I mention he always has more month than money?

        By comparison, I have no kids or women in my life to suck money out of my wallet, and my car cost me -$150.(An insurance claim on a hit-and-run where I got rear-ended paid me around $150 more than I paid to buy the car. This was out of the other driver’s insurance, by the way. She was caught, arrested, and…won’t be driving for a long time.) And I’m currently investing 50-75% of my take-home pay. The single life is cheap.

        • 9

          Len Penzo says

          Good for you, Volfram! You obviously have a good handle on the simple fact that one stays out of debt by spending less than they earn.

          I have a personal motto I occasionally pull out here on my blog that is similar to your excellent suggestion:

          “Over the long run, you’re better off if you strive to be anonymously rich rather than deceptively poor.”

  3. 11

    says

    Great list! I absolutely refuse to cosign a loan for anyone regardless of how much they promise they’ll follow through. If you need a cosigner your promises probably aren’t being kept.

    • 12

      Volfram says

      It could simply mean you’ve been a little too careful with your money.

      I don’t own a “credit” card, per-se, don’t have any personal debts, and don’t really have a lot of credit history. When I suddenly started looking into a house, one of the real-estate agents suggested that I may need to have my parents co-sign on the mortgage.

      I dismissed the suggestion before he’d finished making it.

    • 13

      Len Penzo says

      I will not cosign a loan for anyone either, Lance — not even my kids. (And don’t think I haven’t already told them that a hundred times!)

  4. 14

    Oscar says

    Have to caveat 33: you can take advantage of coupons and specials as often as possible, and still spend more money by the virtue of buying a bunch of stuff you don’t need. I am not a great couponer, but I take great delight in bursting some extreme couponer’s bubble when they brag about their latest haul by saying that I saved even more money than them by not buying all of the stuff they will just end up throwing out or donating.

  5. 16

    Sara says

    Great list! I agree that #47 should be #1. Maybe an alternate #42 should be – Not having a savings goal. Most people are more apt to save if they have something specific for which to save. “Retirement” is pretty abstract. $200k by age 50, or similar, is also a large (seemingly) unreachable number. Is that too close to #43?

    Most people don’t like percentages, either. Maybe you could come up with some sort of calulator in a sidebar that says “I make this much, so this is how much I should save per paycheck.” I’ve seen similar semi-complicated ones with current age, retirement age, goal amount, percentage earned on savings/IRA, blah blah. I loved it, but your average Joe/Arthur/Steven isn’t gonna plug it all in. $200/paycheck * 26 paychecks = $5200 Woot! But! If you make $4000/paycheck then you’re only saving 5%.

    • 17

      Len Penzo says

      I hear ya, Sara. I do think your otherwise fine suggestion is pretty close to #43 though. :-)

      I’m not a big fan of financial rules of thumb because their one-size-fit-all solutions don’t usually apply to everyone. In fact, I wrote two articles on financial rules of thumb that are really old wives tales!

  6. 18

    says

    Awesome list! #29 is such a classic mistake I see too often. My father always told me not to be penny conscious and dollar foolish.

    Thanks, Len.

    Gerrid

    • 19

      Len Penzo says

      My pleasure, Gerrid. I think #29 is a particularly sneaky one because people who succumb to that one don’t even know they’re doing it.

  7. 20

    says

    Have you ever seen the movie UHF? The picture of the penny reminds me when the homeless guy walks up to the business man and thanks him for the penny because it was a 1955 double die stike, and he sold it for $3000 and bought a rolex.

    • 21

      Len Penzo says

      Oh, I’ve seen it, Squeezer. Who doesn’t love Weird Al Yankovic?!!

      On a side note, UHF is my daughter’s favorite movie — so we have it “permanently” saved on our DVR.

  8. 22

    says

    I totally suck at wii golf. You must be pretty good by now. But…. I kill at wii tennis! I challenge you to a match :) And I still haven’t mastered weekly/monthly meal planning we talked about last year at Fincon

    • 23

      Len Penzo says

      I used to be a pro, Barb. I think my best score was 8 under for 9 holes.

      I rarely play it anymore because I spend most of my free time blogging. So I’ve traded a sore shoulder for carpal tunnel syndrome. lol

  9. 25

    Jenna says

    I love this list, Len! Sorry to say I still make quite a few of these mistakes. Maybe you could mention # 42 is not having a will or trust.

  10. 27

    Tom says

    I like Jenna’s suggestion, but would put it a bit more broadly: not having a plan (and the associated documents) governing how your affairs will be managed when you aren’t able to manage them, whether due to death or disability.

    • 28

      Len Penzo says

      I like that idea, Tom. I think this improves upon Jenna’s original suggestion. I’ve made it the new #42.

  11. 33

    Susan says

    Number 18 gets a big AMEN from me. We sold our big house 2 years ago for a lovely home of half the size and a little further from the ocean. Our taxes, insurance, utilities, HOA fees, even maintenance costs (salt air is death to everything) have been slashed. We recently had our first electric bill off less than $100! I’m shooting for some $80 months. All that found money goes straight to savings, and this joint is much easier to clean…all good.

  12. 34

    Wise One says

    If you are going to list one item twice, I think it should be #39- Marrying the Wrong Person. Having 28 years of experience living the consequences of this one, I want to tell all of your readers that this is SOOOOOO TRUE!!!!!!! I married a financially irresponsible person, who destroyed our marriage and split apart our family by making many of these financial mistakes, particularly Credit Card Abuse. Having destroyed me financially, she is now attempting to decimate me even further in the divorce process, by taking a chunk of my retirement, saddling me with half of her credit card debts and attorney fees, and spousal support, along with child support for our minor child. Making mistake #39 can literally ruin your life. It is the gift that keeps on giving, literally, until you are in your grave. Please be wise when selecting a mate. Make sure they are financially responsible before taking the very serious step of marriage. If they are not responsible in this area, Run, Don’t Walk, Away! Your lifetime of emotional peace, physical health, and financial stability depend on it. Please believe me; I have lived this.

    • 35

      Pushed over and dumped says

      To Wise One
      I cannot believe what I’m reading, your story is exactly mine after 28 years I mean exactly. I should have saw the lite many years ago….oh I did and can’t believe my stupidity. I know I will get out of this in short order, however I wish that I would have listened to others….. good luck with your travels

  13. 36

    says

    Wow, this is such an extensive list! I have definitely been guilty of a few of them in my past. We eat leftovers, too! I could totally eat the same thing every night for the rest of my life, but my wife seems to think otherwise.

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