Stacy Johnson
Money Talks News
Everybody makes mistakes — even
people who write about money for a living. Here are a few examples from some of
the nation's top bloggers, along with 10 of my own.
On Wednesday, we covered 30 Tips to Spend Less and Save More, asking some
top financial bloggers for their single best idea. Today we're looking at a
different side of money. At the recent Financial Bloggers Conference, I asked some of
the same and a couple of different financial writers to share their worst
financial mistakes.
Here are 10 bad approaches to the
family finances.
1. Buying a new car.
You might as well be flinging $100
bills out the window as you cruise off the lot. New cars see an instant drop in
value of up to 25 percent. Buying a gently used car that has 98 percent of the
reliability at 75 percent of the cost should be a no-brainer. For that matter,
you can get a reliable car for $5,000.
This is the one mistake on this list
that I can say I've never made. I'm 56 years old and have yet to buy a new car.
2. Borrowing to buy things that lose
value.
A car is only one example of things
people finance. Furniture, appliances, technology — the value of all these
things is headed in one direction, and that's down. Paying interest means
getting hit twice, first by the value loss and then by finance charges.
There are purchases where borrowing
is justified: a home, a business, or an education can be among them, since they
at least have a chance of ultimately increasing your net worth. For pretty much
everything else, the fewer borrowed bucks, the better.
It's hard to imagine that anyone in
America hasn't made this mistake at one time or another. I certainly have.
3. Earning squat while paying
plenty.
If there's anything personal finance
professionals agree on, it's making sure you have an emergency fund. Nothing
wrong with that. But if you're paying 25 percent on a credit card and earning
less than 1 percent on your savings account, you're more likely to create an
emergency than solve one.
If you're about to get laid off or might
otherwise find cash hard to come by, setting aside as much as possible while
you can is obviously a good idea. But if your job is secure and your life
stable, use your savings to pay down high-interest debt.
I'm potentially making a variation
of this mistake right now by keeping money in the bank while maintaining a
mortgage. My logic? I think I can earn more by investing than I'm paying in
mortgage interest. So far so good, but it's easier said than done.
4. Ignoring your credit score.
I'm happy to report that I don't
make this mistake. I check my credit report at least annually.
You've heard it all before: A low
credit score means higher borrowing costs, higher insurance costs, and more
difficulty with rent and work. But that's the tip of the iceberg. There's also
opportunity cost.
Say we both borrow $200,000 on a
30-year mortgage. Because my credit score is lower, and my interest rate is
higher, my payments are $1,200 a month. Your higher score and lower rate earns
you a $1,000-a-month payment.
Suppose you invest your extra $200
every month during that 30 years and manage to average 8 percent annually. At
the end of that time you'll have $300,000. That's a pretty nice payoff simply
for having a higher credit score.
While you can't get a free copy of
your credit score, you can get a free copy of your credit history from AnnualCreditReport.com. If you don't like what
you see, take steps to improve it.
5. Wasting a windfall.
Here's a mistake I've certainly made
before. Who hasn't?
Getting a big lump sum of money is
exciting, and all too easy to blow. Many people get this opportunity every year
with tax refunds, which averaged more than $3,000 for 2011. Don't waste it at
the mall. Leverage it by paying down debt, increasing your productivity, or
adding to your savings.
6. Overpaying your taxes.
Speaking of taxes, from putting
money in a retirement fund to taking investment losses, there are ways to
legally reduce them. Many times we don't take advantage of them because we fail
to take the time before year end to do a little planning. Big mistake, and one
I've certainly made more than once.
7. Buying name brands.
In some cases, certain brands are
noticeably better and worth the money. But when they're not, you're wasting
money. In fact, with some things, like aspirin, for example, the generic isn't
similar, it's identical. Go generic as often as possible. If you don't like it,
switch back the next time you shop.
Have I made this mistake?
Absolutely.
8. Getting scammed.
Sometimes an offer is too good to
refuse — even when we get the nagging sense that we should. Scams can be
painfully obvious, like those "Dear Sir" spam emails from Nigeria. Or
they can be subtle and sophisticated, like fake charities, contractor rip-offs,
product reviews, and more. At least avoid the Federal Trade Commission's list
of top 10 consumer problems and learn to identify
scams.
I've been investigating scams for
more than 20 years, and I'm still not immune. Is it possible to live in America
and never fall prey?
9. Missing new technologies.
We spend a lot of money on our
gadgets, but not much effort learning how to use them to save on both time and
money. Whether it's with black boxes that replace cable at 10 percent of the
cost, smartphone apps that track spending and find savings, or websites that
offer your favorite music for free, there's no reason technology can't make
life more convenient and cheaper.
I'm learning new ways to tackle old
problems every day.
10. Settling for more.
The asking price is rarely what you
have to pay when it comes to many goods and especially services. If you aren't
inquiring about discounts, researching coupons, and haggling for the best
prices, you won't get them.
Those who do might enjoy free hotel upgrades, lower
interest rates, and even cheaper doctor visits.
While I'm probably better than most
at finding deals, there's always room for improvement.
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