Sometimes people can make dumb choices when it comes to money. With the economy being the way that it is, there are certain mistakes that should be avoided now. Many mistakes can be avoided from pure knowledge.
#1 –Forsaking Money in the Bank but Balance on Credit Card
- If you have money in your savings account, use it to pay off the balance on credit card
- The savings account is not earning enough interest to justify keeping it in savings rather than paying off the card
- The credit card will accrue more interest than the savings will earn
- Pay off the balance as soon as possible to avoid paying high interest rates and late payments
- Rebuild the savings after paying off the credit card balance, this step actually needs to become a Common Money Move
#2 – Getting Debt for Things that Lose Value
If it will lose value quickly (depreciate), it may not be worth going in debt for. However, going into debt for something that will gain value is more financially savvy versus buying something of less value. There may be occasions where certain things may be unavoidable, but it is best to pay cash if possible.
Examples of Value of Items
- Home (main dwelling place) – this will increase in value. So this will be considered something that will increase its value rather than depreciate.
- Rental Property (for supplemental income) – this will not only increase value, but generate income that can be used to pay back the debt that was created. So this would be justifiable to go into debt for.
- Car (brand new) – as soon as this car is driven off of the lot (from being purchased) it will immediately lose a significant amount of its value.
- Electronics (brand new) – most electronics depreciate as soon as it is opened. So it is not wise to go into debt for something that will need to be replaced very soon.
#3- Buy Used instead of Buying New
This step is a Common Money Move. Many times people think that buying new is the only way to buy certain things. But that is far from the truth. There are many things that are just as good when they are used as they are when they are new. Now there are certain things that should always be bought new http://www.daveramsey.com/blog/new-or-used-everyday-items. Many times buying used is a really significant drop in price from the new item. So it is best to do research and find out the value of buying new versus used.
#4 – Spending Money on Rarely Used Items
- This Common Money Move can be avoided by quickly accessing if the item is multi-use or one time use
- It may be wise to see if someone else needs that item and the purchase is actually split in half or divided up to save each party money on the item
- See if the item can be rented and compare the purchase price versus the rental price
- If the item can be used to generate another income, it can offset the cost of the item
#5 – Failing to Return Unwanted Items and Cancelling Free Subscriptions
This Common Money Move is very similar to the one above. Paying for a subscription that is not being used is throwing money away. Also keeping unwanted items around the house is another way to get rid of money.
Ways to Avoid Common Money Moves
- Do inventory on current items
- If a unwanted gift is received, keep it in car to take it back to store
- Set up reminders to cancel free trials if the service is no longer needed
- Do inventory on current services the one is receiving
- Go over monthly statements on bank accounts and cards
#6 – Missing the 401(k) Match from Employer
By not taking advantage of the matching from the employer, is such a Common Money Move. This move is very wasteful and costly. Why not take advantage of your company offering free money? Everyone needs to sign up for this option immediately. It does not matter how little the match is, there is free money at stake.
#7 – Signing Misunderstood Contracts
- One of the most Common Money Moves
- Can be very costly
- If you don’t understand it, don’t sign it
- Ask questions until there are none left to ask
- Get help, even legal help
#8 – Neglecting a Safety Net
Having a safety net with money can decrease the need for extra debt. It is best to have a back-up plan just in case. Whenever it comes to money, if there is too much sitting aside, there can be things done to relieve that plan. So it is better to have too much set aside than not enough.
#9 – Spending Additional for Lower Deductibles
- Set you deductible with the amount you are comfortable spending
- Do not set high deductible if that amount of money is not continually in savings account
- Shop around and check the difference in premiums with higher\lower deductible
#10 – Living Without a Plan for Money
Just like a basketball game would not be played without a game plan. Life should have a game plan for finances, no matter the age. This mistake could be very costly for many generations to come if not taken seriously. Do not let money be its own boss, if you work for the money, make the money work for you.