As this penny illustrates, even the United States Mint occasionally makes money mistakes.
I’m not ashamed to admit I make mistakes. 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. 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 cant 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, its 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, theres 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 isnt.
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 isnt intended to cover minor fender benders its designed to protect you from losses you cant 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
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.
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
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.
Spending more than you earn. – You ranked it at 47. Shouldn’t it be First?
I didn’t list them in any specific order, Sudip. But, yeah, that is arguably the most important one, isn’t it?
#6 works for me the following way – I never buy a new car. Only a car between 3-5 years with a proven track record and decent reviews. And low repair cost.
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.
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.
“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.
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, youre better off if you strive to be anonymously rich rather than deceptively poor.”
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.
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.
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!)
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.
Good point, Oscar. That’s another good example of of spending a dollar to save a dime.
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%.
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!
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
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.
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.
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.
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
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
This is a great list. This should be an eye-opener to more people who will read your post. Thanks for sharing!
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.
I really like that one, Jenna!
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.
I like that idea, Tom. I think this improves upon Jenna’s original suggestion. I’ve made it the new #42.
I’ve definitely been guilty of not canceling memberships after I’ve stopped using them. Another one that is related is failing to return items to the store when I realize that I’m not going to use them.
That’s a good one. So is not keeping your receipts!
#42? Buying a needed item at a good price, but ‘after rebate.’ Then forgetting to send in the form.
That’s another good one, Joe. I’ve done that on at least one or two occasions.
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.
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.
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
“If you are going to list one item twice, I think it should be #39- Marrying the Wrong Person. ”
OH AMEN! Fortunately, I married the “right” person about 50 years ago, but have seen many, many others get it wrong with absolutely devastating financial and emotional consequences.
If I were dating these days, I’d have one criteria – What’s your FICO score?
One other comment and I mean this sincerely – it helps to have low standards – the world if far from perfect!
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.
Great post.
Great list Len. I try to pimp your site out to my son and younger nephews and nieces for financial guidance. My son is getting a great bit of benefit from the financial education available offered these days. They are all starting out as adults and I want to give them a leg up on what could pass as meager financial education afforded to me as a young man.
My dad used to tell me that if you want something you will have to go into debt for it. I never liked that thought and have tried to eschew as much debt as possible. For years, my mother would always tell me to pay yourself first, like maybe treating yourself to a little something out of every paycheck. She reminded me of this earlier this year. I told her that I am paying myself first, 10% of my paycheck goes into my 401k as well as the meager corporate matching.
That seemed to catch her off guard a bit. I guess different times and different financial educations I guess. The struggle continues…
Thanks, David. I’m with you: If you want something, you don’t have to go into debt to get it — you have to save for it. Sadly, in today’s credit-based society, saving has become mostly a lost art.
Keep fighting the good fight.
Thanks for the reminders! What I like out of all these 50 mistakes is failing to read contracts before signing on the dotted line. I make it a habit that I read first before I sign. I know lots of people have once been a victim of this mistake.
Hey Len, for #38 – any recommendation for insurance deductibles?
$500, $1000, or $2000?
I always go with the highest deductibles, Joe. I used to go the other way, but one day I woke up and realized that I was never making a claim because of fear that my premiums would rise — so it made no sense for me to pay higher premiums for the lower deductible. Now I pay lower premiums for the highest deductible, and it works much better for me. After all, the old saw is you should only insure things you can’t afford to replace on your own; and the only time I am going to make a claim is if the loss is really big and I have no choice.
This is a good list, but regarding #45, taking advantage of your employer’s flexible spending account, there is one thing people should consider. When you contribute to a FSA, you are saving that money pre-tax, including Social Security taxes paid by you and by your employer. Therefore, you are reducing the amount of FICA wages, and, down the road, the amount you will collect from Social Security, SS disability, or, heaven forbid, the Survivors’ benefit, should you die and your spouse is left to raise your children.
My employer allowed several pre-tax deductions, including child care, commuting costs, FSA, Health Savings Accounts and paying for health insurance. The IRS wouldn’t be letting all this tax get away if there wasn’t an up-side for the government in this.
Of course, this won’t make a difference if you make above the cap on wages and pay the max tax for your Social Security.
For a lot of different reasons, #44 should be #1. Impulse control isn’t just about spending, sometimes those impulses can effect your bottom line in other ways (like tinkering too much with your portfolio or taking on projects with hidden costs)
I probably should have said these were in no particular order, Stacy … but I certainly get your point! 😃