7 Decisions That Can Lead You To Financial Misery
When it comes to making money decisions, you need to decide what advice is real.
Posted Mar 29, 2017
“Fake” news: One of the most controversial and trending topics to discuss today. Who is trolling whom— and what is the real agenda behind all those stories that you see on social media? When it comes to making money decisions, you need to decide what advice is real or fake—or be able to see the agenda behind the latest craze. Making decisions based on bad advice can lead you right into the jaws of misery and regret. Following are 7 financial decisions to avoid if you want to keep your financial life healthy:
- Buying whole life insurance as the financial answer to every question. Many perhaps well-intended agents are all too happy to show you illustrations of stratospheric values that will allow you to protect your family, put your kids through college, and retire. All you need to do is keep paying the premiums and pray the ledgers are somewhere near reality. Considering these illustrations are based on dozens of assumptions, the odds of reaching the promised land isn’t wonderful. Avoid these pricey contracts and keep your accumulation and protection needs in different piles.
- Stock picking or market timing your way to financial wealth. Somehow, the exuberance of youth causes people to latch on to the belief that they can, through careful research, figure out what to buy and when. Often enough, the first trade is successful, adding confidence and swagger. Financial history is littered with the bones of those who believe they found the magic decoder ring to untold wealth. Speculation is fine with dollars that don’t matter, but when you start “playing” with important money, let history guide you to a more prudent course.
- Cashing in your 401(k) when you switch jobs. Nothing is easier than grabbing that balance and telling yourself that “it’s only…..” a small amount. But after taxes and penalties, the amount is even smaller and you have taken a step backward in long-term financial success. History has shown that even small amounts can grow significantly over time. Think long—not short!
- Following the crowd. The latest craze seems to be buying or selling stocks based on President Trump’s Twitter feed. Proceed with caution: While markets are known to react, they typically come back to fair value based on reality—earnings and profits. Predicting when to buy or sell based on shotgun comments is no different than buying a lottery ticket. Again, if it’s play money that you don’t care about potentially losing, have fun; but it is not a rational strategy for building wealth.
- Investing your emergency fund in the stock market or long-term bonds because you just cannot stand to have “non-performing” assets. OK, I get it. Seeing a balance in savings or a money market somewhere south of 1% isn’t great. But in reality, the reason for an emergency fund is for just that: Emergencies, unforeseen events, and unscheduled occurrences. If you knew when you’d need the funds, it’d be a different ballgame, but resign yourself to the idea that an appropriate amount of assets should be accessible, liquid and not subject to market or interest rate volatility.
- Including bonuses in your spending budget. Let’s face it: Even if you’ve received a bonus of a certain amount consistently over the years, unless it is contractual, leave it out of your spending plan. Don’t count on money you haven’t received. Instead, make decisions based on a balanced, reasonable approach after you’ve received the bonus. For example, look at your biggest needs. Do you need to do some long overdue repairs, replace a car, catch up on savings for retirement or pay down debt?
- Allowing yourself to be guided by advice provided by newsletters, magazines, seminars or television personalities. Realize that one-size-fits-all advice, regardless of the medium of communications, may be OK or may be the worst possible solution for your situation. Think of the millions of dollars paid by consumers to learn how to flip real estate, trade options, buy and sell coins, etc. Typically, the only ones getting rich are the people doing the selling. Television personalities are paid healthy salaries to grab audiences, which in turn creates huge dollars paid by advertisers. Don’t get fooled by slick packaging, lofty promises and schemes that seem great only to find your wallet thinner.
It’s too easy to make regrettable decisions. Most people lack the time, interest or background to make choices that are prudent and help them stay true to their goals and values. Be smart and, as Stephen Covey said, begin with the end in mind. In other words, figure out what you really want, what’s really important, and then work with a professional who can help you create a path to get there.