What are the biggest mistakes you can make with your money? Below is a description of six common errors:
Procrastination - Many people have a long "to-do list" when it comes to their finances. They simply put off important tasks such as preparing a will, having a professional review of insurance needs, or checking their credit report for accuracy. The best antidote for procrastination is a list of financial tasks with a dollar cost and a deadline date. "How to" information may also need to be gathered, such as how to begin investing in an employer 401(k) plan or how to purchase Treasury securities or savings bonds.
Desire for Instant Gratification - Modern advertising makes it easy to confuse needs and wants and to expect to "have it all now." For many people, the thought of saving for months or years to buy something with cash is a totally foreign concept. Some ways to avoid impulse buying include: not shopping for entertainment, making a list and only buying items on your list, building in a 1 to 2-week waiting period before making large purchases, and converting money into labor (e.g., calculating how many hours of work it takes to buy something).
No Disaster Plan - It is dangerous to live "paycheck to paycheck" without any financial reserves. Emergencies can- and do- happen. Financial planners advise having cash reserves of three to six months expenses. Another financial fallback strategy is a low-cost home equity line of credit, which can be established when times are good and tapped only if necessary.
Not Having A Plan - Several recent studies have indicted a positive relationship between planning behavior and wealth accumulation. People who develop financial plans save more, have a higher net worth, and feel better about their financial progress than those who do not. Stated another way, failing to plan is planning to fail.
Use of "Bad Debt" - "Good debt" is debt used to finance appreciating assets (e.g., a house) or investments in human capital (e.g., a college education). Interest is often tax-deductible. "Bad debt" is the use of revolving credit card balances and loans used to finance "disposable" items such as clothing, gasoline, vacations, groceries, and restaurant meals. Interest is not tax deductible. Think before you borrow and consider whether you are using credit to incur "good debt" or "bad debt."
Failure to Get Help - There are many places to get financial information and advice including books, Web sites, consumer magazines such as Smart Money, Money, and Kiplinger's, and Rutgers Cooperative Extension programs and online resources (see www.rce.rutgers.edu/money2000 and click on "Resources"). Financial planners are another source of help. To find the names of local financial professionals, visit the Web sites www.napfa.org and www.fpanet.org.