Tuesday, November 20, 2007

Money Traps to Avoid

The items in bold were in a recent article I ran across. Personalized green3 notes have been added!

Not having a goal and a plan to achieve it
I spent many years on financial cruise control. Getting a paycheck, paying the bills, getting another paycheck, paying more bills, and on and on. I never took an interest in my money. We could make the payments on everything, so we thought we were doing well. We even had a substantial savings. But now I know that a savings account doesn’t mean squat if you have debt that offsets it. Now I have very specific financial goals and almost every day I review the plan to achieve it.

Not being willing to change your behaviour
I think this should actually be number one. If you aren’t willing to change your behavior, you’ll never be successful financially. I would bet that most people have no idea how much money they spend each month down to the exact dollar. That leads to spending more than you are earning. Do you feel like you are not making enough money? In quite a few cases, the income is not the problem – is the expenses! If you act your wage, you will succeed.

Not paying off your credit card debt each month
Each month? I think those last two words need to be removed from the above line. If you are still using credit cards, please ask yourself if those purchases are necessary enough to be in debt to have them.

Making only the minimum payment on your credit card debt
Minimum payments get you nowhere except further into debt. That’s why citibank only allows the minimum to be paid through their automatic payment system. Credit card companies love people who pay minimum payments. Don’t be one of those people.

Failing to save at all, or to save enough to be realistic
If you are living paycheck to paycheck, you are setting yourself up for disaster. At the very minimum, you should have $1000 set aside for immediate emergencies. It’s more realistic to have that amount equal to 3-6 months of wages set aside.

Waiting too long to save for long term financial goals
It’s wrong to think, “I’m only 30 years old. I don’t need to think about retirement yet.” Wrong. If you are 30 and haven’t been working on it, you have already missed out on some precious years. Get started TODAY!

Failing to take advantage of your employeers 401k plan
Don’t throw away free money!

Not having any, or enough, life insurance
A death is traumatic enough. Don’t let your family deal with additional suffering by not leaving them financially stable. Personally, I think each parent should have a term life insurance policy worth at least 10 times their salary. If you are gone, you want to make sure the house is paid for, college is paid for, all debt is paid off, etc. And if you have a whole life policy, cash that baby out immediately and do something valuable with that money.

Overinvesting in company stock
I have played with individual stocks throughout the years and have made some money. But frankly, I don’t like putting that much money on just one company. It’s impossible to know what will happen in the future, so I don’t own any individual stocks anymore.

Letting emotion drive decisions
See a new shirt at the mall? Is the bookstore having a great sale? Really want an iPhone? These decisions may seem small, but lumped together they can put you in financial ruin. Spend your money wisely, friends.