Think you know all you need to know about money and that financial advisors are just a waste of money, so why listen to their advice? Are you pretty sure that your financial strategy is superior to all others and that you will hit it rich just as soon as your investment in the Iraqi Dinar is revalued? Bad financial strategies can be found everywhere you look. We all want to be financially secure, but sometimes the choices we make on the path we think will get us there are flawed, sometimes laughably flawed.
Let’s have a look at some of the worst money moves you can make.
Putting all your eggs in one basket
The only times all your eggs should be in one basket is if it’s Easter and you are a 5-year-old girl collecting painted eggs and candy in their pretty pink basket. But even that little girl can tell you that if she puts all her treats in one basket and leaves it unattended her brother may pilfer a large amount of her candy leaving her with no reserves. When it comes to money baskets, the name of the game is diversification. An undiversified investment portfolio leaves you exposed to 100% of the risk. Spreading out your risk by investing in a variety of high and low-risk investments in a variety of industries and products means that one raid of your financial basket won’t leave you high and dry. If you were primarily invested in real estate in 2008, you found yourself left with worthless holdings as home prices plummeted. Investing solely in oil and gas single stocks could find your portfolio wiped out after a hurricane comes ashore and takes out all of the Gulf South’s energy production for the time being. Spreading that risk means that if one investment product goes belly up for a time, your other investments may continue to grow and make you some money until the damaged product or industry gets back online.
Borrowing as much money as the bank will lend you
When it comes to making large purchases of a home or a vehicle, how do you determine how much you can afford to spend? Why, ask the bank of course! They are the people with the money so surely they are the experts. They can tell you what you can afford and that you should take on the highest loan that your income and credit score algorithm will support. You deserve it! Never mind their profit motive, they are the experts and you should just be grateful that they are even thinking of giving you a loan. Nevermind that the more debt you take on the riskier your life becomes and that you can easily find yourself overleveraged and house-poor, unable to scrape together some money for an emergency because you overcommitted to a hellish monthly mortgage payment. If you have one major injury, illness, or job layoff you may find that your mortgaged house of cards comes crashing down and you have to say goodbye to that gorgeous granite kitchen and sell it at a loss because you just cannot afford it after all.
Putting off savings because you are young
Young people live as if they will never die. Cliché right? Yes, but there is always some truth in clichés. Sure, when it seems that you have your whole life stretched out for miles and decades in front of you it seems so easy to procrastinate on the things that you know you should do but you just don’t want to sacrifice to do right now. The problem is that the choices you make when you are young drastically impact your quality of life when you are older. Unhealthy eating habits or smoking when younger can lead add up over the decades to result in major illness later in life. The same is true of positive habits. The younger you are when you start investing the longer your money can compound and grow into a massive nest egg for you to sit comfortably on later. The trap is that when you are young and your income is small and you tell yourself that you cannot possibly afford to save or invest right now and that it will have to wait until you are older and have a larger income. But with larger incomes come more responsibility, and if you wait you may find that you have to spend that larger income on daycare bills, house maintenance, and feeding and clothing your family. The very best time to invest is when you are young and have disposable income that doesn’t have to be allocated to a bill or caring for another person. Even if it seems that you have very little, you will look back on your life and find that you had far more than you thought you did.
Giving up!
The worst financial mistake you can do is to get a case of the f- its. Thinking there is no way to save or you won’t live very long so you don’t save will only cause you pain. Wasting your money because you feel that there’s no point in saving, or that you are so far in debt that there is no point in even trying to pay it off, only leads to anger, depression, and an empty bank account. Losing hope means you will lose with your finances. If all seems lost and you can’t get it together to try, it’s easy to declare bankruptcy, refuse to open your mail, crawl into bed, and order way too much from an online food delivery service. Hiding your head in the sand and refusing to look at your finances will not make your financial problems go away and actually only makes them worse. You cannot hide from the IRS or your creditors. They know where you live and will sue you or garnish your paychecks. Avoiding saving because you think there’s no way you could possibly save enough by the time you retire only is a self-fulfilling prophecy. There is always hope. Even the most impossible mountains can be climbed. It may take years of hard work and diligent budgeting but you can eventually learn to take control of your money, get out of debt, and save for retirement. Even if you cannot save up the $1 million or more that you think you should have when you retire, any amount that you have is better than nothing and will still earn you some interest.
Do these bad financial strategies sound all too familiar to you? These are easy traps to fall into and sometimes can be hard to get out of. Working with a financial advisor can give you sound, professional guidance with your finances so you can avoid pitfalls and set a wise course for your financial strategy. Keep an open mind and keep yourself teachable. Read and learn all you can about finances and ask questions. Being sure that your plan is right has led to many a misstep, so check your plan with someone who can let you know if you are off course.
