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Now I know that a lot of my listeners and clients are well on their way to a comfortable retirement and are living fulfilling lives with all the joys of a steady job or business, a nice house of their choosing in a good neighborhood, and a good lifestyle with material and social comforts such as the ability to dine at nice restaurants, take nice vacations, socialize with wonderful people and indulge their desires for things like comfortable cars, elegant home furnishings, etc. – things that are nice to have and make for a rich, comfortable and fulfilling life.
There are joys to buying new cars and high quality name brands, but only if you’ve got everything else taken care of.
That said, I also routinely meet people who have had steady, well paying jobs but have still not managed to save enough for retirement, and are worried about their financial future. And when quizzed about what they did to not be financially secure, I often see the same pattern repeated over and over – with unwise financial moves – mostly out of ignorance or an overly carefree live-for-today attitude – that kept them from saving and regularly investing for a financially-secure.
There are joys to buying new cars and high quality name brands, but only if you’ve got everything else taken care of. In the meantime, be smart, pull yourself together and get in great financial shape by solving your money problem.
So here’s a list of eight unwise financial moves that I came across in an MSN Money article that I wanted to share with you today. But before that, let me stress that some of these moves, like buying a fancy new car, do not apply to people who are financially secure but to those who don’t have enough savings and need to save more so they can build a comfortable nest egg.
8 Tips to Get Your Finances in Order
- Borrowing to buy depreciating assets
Money Problem: Your IOU becomes an OMG when your purchase loses value. That’s why the housing crisis was so devastating to many families. Everybody with an underwater mortgage – meaning they suddenly owed more than their homes were worth – learned this the hard way.
How to avoid it: While homes typically increase in value, we generally know beforehand what’s going to lose value – almost everything. And borrowing money to buy things that decrease in value — like cars — is simply compounding the loss. That’s why — ideally — credit should be used only to buy those few things that generally increase in value: a house, an education, or maybe a business.
- Buying a new car
Money Problem: If consumers want to feel smart, they comparison shop, kick a few tires, and talk to a few salespeople in an attempt to get a decent deal. But even if they drive the hardest possible bargain, that new car is still guaranteed to lose thousands of dollars in value the second they buy it and drive it off the lot.
How to avoid it: For starters, buy used, preferably from private sellers. And there is something of an art to finding a great used car. Check out tips and resources online with a search on “Tips for Buying Your Next Car for Less” or “Things You Should Check Before Buying a Used Car.”
- Saving while in debt
Money Problem: Savings provide a sense of security, but if you pay more interest on your debt than you earn as a return on your investments, you’re going backward. One possible exception could be debt that comes with a tax benefit, such as mortgage interest or some student loans.
How to avoid it: As a rule of thumb, use low-interest savings to pay off high-interest debt. The reverse will gradually reduce your net worth. But don’t sacrifice peace of mind. If you’re in danger of being laid off or expecting a big expense, and retaining cash helps you sleep at night, that’s worth factoring in.
- Buying name brands
Money Problem: In some cases, name brands are worth the extra cost. But in others, they contain the same ingredients as generics at a higher price.
How to avoid it: Don’t pay for a popular brand’s advertising budget. When things are worth the extra money, pay it. But for many items, such as prescription drugs, salt and sugar, many cleaning supplies, the generic is identical to the branded product.
- Ignoring your credit
Money Problem: A good credit score is important because it affects the rates you pay for loans, insurance rates, credit offers and even job offers. Yet many people don’t even bother to keep track.
How to avoid it: Understand the cost of bad credit and take steps to improve yours. Take a few minutes today and get a free copy of your credit report online at sites such as AnnualCreditReport.com. If your credit score is poor, study up on ways to get it in shape and research ways to raise your credit score.
- Not asking for a better deal
Money Problem: When confronting a major expense, the asking price doesn’t have to be the price you pay. From doctor bills to credit card interest rates, the way to get a better deal is often as easy as asking.
How to avoid it: Always be friendly, but always ask for a better deal. For ideas on how to haggle and get better deals across the board, check out posts such as “15 Ways to Never Pay Full Price for Anything.” Regardless of the activity, there are almost always ways to get a better deal, whether it be awesome prices on vacation lodging or cheaper haircuts for the family.
- Paying someone else to do what you can do yourself
Money Problem: Labor is typically the most expensive part of many home repairs and maintenance. Do you really want to pay the price for gardening, painting, car washing, mowing and cleaning?
How to avoid it: You can save that money by doing many tasks yourself and gain the satisfaction of self-reliance in the process. You may decide some DIY projects — making your own laundry and dish detergent or growing your own vegetables — are satisfying and worth the savings, or not, depending on your other demands and hourly pay. But at least be thoughtful about it. On the flip side, if you’re an avid DIY-er, consider that there are times to back away from DIY projects to save money, avoid catastrophe and injury.
- Blowing tax refunds
Money Problem: The average American tax refund this year was $3,120, according to the IRS. Many people either blow it all at once or fritter it away.
How to avoid it: First of all, remember that a tax refund is money that you overpaid to Uncle Sam. It was your money when the IRS had it, and it is your money when you have it back in hand. Use it to best serve your overall financial health — pay down high interest debt, fix the roof or whatever — but don’t squander it like lottery winnings. Better still, use your tax refund to change your life.
If you are getting a large refund, visit the IRS web site to adjust what you are having withheld throughout the year. Get as close as you can to what you actually owe, because that refund is really not a bonus — just money that you could have used better.
So use the tips I just outlined to get back on track towards financial security, and do all you can to save and invest if you’re short of your retirement goals.