Bad Decisions And The People That Make Them
If you manage your own finances you’re bound to make a few bad decisions. The cause of most bad financial decisions is improper education.
If you’ve read Rich Dad, Poor Dad (I highly recommend you do), the author mentions a key fact. We aren’t properly educated about money.
We go to school to learn things like math and history, and even eventually a profession, but never about how to properly deal with money.
If you have been properly educated on how to spend, save, and invest money then you’re ahead of the pack.
For those of us that haven’t, it might be easy to make some of these mistakes listed below in no particular order.
1) Depending On Credit Cards
Never depend on credit cards. Today’s purchase is tomorrow’s problem.
$500.00 today for that new T.V. on credit can actually cost you a lot more with interest. And once you start its hard to stop.
A few purchases end up being a few more purchases and eventually you’ve maxed out that card and are on to the next one.
It’s always better to wait if you can or figure out other ways to pay if you can’t. For example, you can cut costs other places to make money for other things.
Credit cards almost always start a cycle. This cycle is actually covered in the next bad decision….
2) Fixing Debt With More Debt
I absolutely despise this. The answer to debt usually isn’t more debt. Although it usually sounds nice to roll all of your debt into a consolidation loan or the like, it usually doesn’t work in the long run.
Of course, who am I to question your discipline? But let’s be honest here.
Usually when a person uses a consolidation loan or a HELOC (home equity line of credit) to reduce interest payments, they free up those credit cards, only to use them again and dig a deeper hole.
If you are planning on rolling all of your credit card debt up into one loan, do yourself a favor and cut up the old cards or lock them in a safe or drop them in a well. Whatever you can do to make sure you don’t bite off more than you can chew.
3) PayDay Loans
The absolute definition of predatory lending is PayDay Loans.
They closely straddle the line of scam and legitimacy. If you’re thinking of taking a PayDay loan, I would strongly advise against it.
According to responsiblelending.org, the average payday loan has an annual interest rate ranging from 391% to 521%.
I highly advise that you explore ANY AND EVERY other option available to you before agreeing to something like this.
4) Putting All Your Eggs In One Basket
I’m sure you’re familiar with this saying. If not, I’m talking about putting all of your money in one place.
I’ve saved this for last because it is probably one of the things that can scar you the most.
I’m a strong believer in saving, but I’m also a strong believer in diversifying your money to make it work for you. Savings are great for rainy days, but savings accounts really aren’t making you much money.
Stocks, bonds, and other investments provide much more for your money, but also more risk.
One of the smartest things I’ve ever read, was that your investment to risk ratio should adjust based on your age. Put your money in stocks and other more risky investments in your younger years and begin moving more of your money into savings as you grow older.
Id say start with a 25% in savings and 75% in investments in your 20’s. Move to a 50/50 model in your 30’s, and to a 75/25 model in your 40s and beyond. You can adjust this as you see fit, but I believe that this is a good scale to work with.