33 of the Worst Financial Decisions You Can Make

As a CERTIFIED FINANCIAL PLANNER, people ask me all the time: “Hey Justin, what financial advice would you give me since I am just starting out?” I thought it would a great article to give you my list bad financial decisions that I see people make so very often. 

1. No budget—I’m not trying to beat a dead horse here, but budgets are crucial to staying financially healthy.
2. Not sticking to your budget—Blowing the budget is just as bad as not having one. If you don’t stick to it, you’ll find yourself turning to credit. Make a budget and stick to it!
3. No emergency fund—Life happens. It happens to all of us, and when you aren’t prepared for that unexpected expense, you’ll resort to #2. So sock some money away into an easily accessible account like a savings account or money market. Then vow not to touch it unless you have an emergency.
4. Keeping too much money in cash—Cash-on-hand is great. However, too much cash-on-hand isn’t. Whatever excess you have lying around is costing you interest. Keep money on hand to pay for necessities and then invest the rest. You could put it in your emergency fund, a Certificate of Deposit or even a money market account. Or better yet, buy some stock with it. Make your extra cash work for you.
5. Increase your standard of living with every pay raise—Pay raises are great, but don’t think every raise means more money to spend. Keep spending at a minimum and invest the rest. You’ll be thankful you did later.
6. Keeping up with your friends—We’ve all heard the old adage, “Keeping up with the Joneses.” Today, it might be the unwisest decision you’ll make. If you can’t afford it, don’t buy it. Debt will haunt you for the rest of your life.
7. New cars–Looking for new wheels? Don’t fall for the car companies’ big ad campaigns trying to move those last year’s models. New cars depreciate way too fast and are overpriced. You are often much better off buying used.
8. Spending your future to pay for your current wants–Credit cards can get you in trouble. Buy now and pay later sounds great now, but you’re limiting yourself in the future. Use cash and if you can’t perhaps you really don’t need it.
9. No savings plan—If you don’t have a plan in place, get one now! Your retirement depends on it. Even if you just put back a little now to get started, do it. As you adjust to learning to save you can increase the amount you put in savings each month.
10. Saving too little—I just told you saving a little was okay, but that’s just to get you started. Meet with a financial advisor and map out goals and plans for retirement. Then aggressively attack your plan if you’re behind.
11. Not investing at your risk tolerance—This could be detrimental on both ends. If you are an aggressive investor yet you invest more conservatively, then you may be disappointed with your long-term gains and harm the results, keeping you from your goals.  If you invest more aggressively when you shouldn’t you could experience emotional distress and react negatively when the markets have a downturn.
12. Investing too aggressively in retirement—The danger of investing too aggressively while you are withdrawing funds from your account. When the market drops say 50% and you also withdraw 5%, you will need to make up both the market drop and distribution percentage. However, the fact that many bear (down) markets recover over a period of years, the withdrawal of a down portfolio could cause your portfolio to never recover from the drop.
13. Not investing aggressively enough—This is especially dangerous when it comes to millennials and women. The fear of loss causes the loss of long-term gains. The markets will return what they will. But the conservative nature of many in these categories could mean working longer or needing to save considerably more to make up the difference.
14. Allowing your emotions to rule your investment decisions—Emotions are tough when it comes to finances. When the market’s down, you may be like Chicken Little and ready to cash out. Or if the economy is soaring you’re willing to bet it all. Don’t! Both of these emotional roller coasters cost too much. Hire a CERTIFIED FINANCIAL PLANNER™ to help you make smart decisions, no matter what the market is doing.
15. Choosing to finance vs. paying cash—Learn to live on cash. Financing just puts you in debt and can choke your budget. All those little payments can add up to big numbers. Obviously, few of us are going to have cash on hand to buy a home outright, so only use financing for examples like this.
16. Gambling—Winning big sounds great, but don’t forget everything it will cost you to get that one payout. You’ll likely spend more than you’ll ever make. Don’t get swept up in the emotion of thinking you can get it back… because most of the time you can’t.
17. Pyramid schemes—Those get-rich-quick schemes sound so good. Remember, if it sounds too good to be true, it probably is. Multi-level marketing businesses are a dime a dozen. Don’t get caught in the cycle. Did you know 99.6% of people lose money? You work hard for yours, don’t throw it away. You’ll have better odds of winning at number 16.
18. Playing banker for friends or family—Helping loved ones our or giving to those say they “need” money is a horrible idea. Don’t confuse this with charitable giving. It just isn’t. Charity won’t drain your bank account. These people will.
19. Grandkids—Dropping money on these precious little blessings is a blessing itself, just don’t make it a habit. If you really want to give to them, set up a trust fund. They’ll thank you later.
20. Divorce—Not only is divorce messy; it’s downright expensive. We’re selfish people. We want our way, and when “the honeymoon is over”, we may think it’s time to walk away. Try counseling first; it’ll save you thousands, and you may find the flame isn’t out after all.
21. An affair—Did you know the average affair lasts six months? Not only will it probably not last, but it also costs $444 a month for total $2,664 over those months, according to a survey by a U.K. retail company, CNBC reported. Plus, if your spouse finds out, it could end costing you tons more in counseling or divorce fees. It’s not worth the financial or emotional investment.
22. Bad business partners—Some people are unethical, wasteful, or simply lazy. Know the person you’re about to tie to yourself. If you get involved in the wrong partnership, it could be financially hazardous.
23. Small Business Failure—With almost 28 million businesses making up the employment sector, chances are you either own a small business (fewer than 500 employees) or work for one. However, did you know that 80% of small businesses fail? Instead of becoming a statistic get with a qualified financial advisor who works with business owners to map out a winning business plan to make sure you don’t become a statistic.
24. Being a Co-signer—Never be a co-signer. It’s just not a good idea. There is a reason why the one asking for help can’t get a loan without you. Chances are you’ll end up footing the bill.
25. Addiction (drugs, alcohol, etc.)—This may be the most expensive on the list. Addiction isn’t just about you and all the money you’ll pour into it. It’s about your loved ones. Not to mention it could cost you your life. Don’t let addiction rule your world. Get the help you need before it’s too late. It’s more cost-effective financially than the emotional turmoil you’ll put your family through.
26. Falling prey to scams—There everywhere – eBay, Craigslist, email. Scams will ruin you financially. Don’t pay for goods or services unless coming from a trusted source. Also, don’t cash those money grams/cashier’s checks and then send the money. THEY’RE STEALING YOUR MONEY!
27. Not paying your taxes—”Render to Caesar the things that are Caesar’s” or in this case Uncle Sam. You don’t want the IRS breathing down your neck. Pay your fair share of taxes, and you’ll be okay. Hire a professional to make sure you aren’t giving them more than they should get and that you aren’t paying too little. Back taxes could be detrimental to your retirement.
28. Buying too large of a house—Don’t bite off more than you can chew. Generally, about 30% of your budget should go to housing. However, err on the side of caution. Go with 20% and save yourself money and headache possibly later. Figure out how big of a house you really need then go from there to start determining how much you can afford.
29. Ignoring professional advice—Just like there are personal trainers to make the most out of your gym efforts, there are financial people who do the same. They are trained to help you reach your best financial you, so don’t balk at their advice. If you have a financial guru that’s a fiduciary, you’ll win every time.
30. Becoming a real estate investor—Real estate is a great place to invest money if you have it. Don’t do it if you don’t have the extra income. If the market crashes, you’ll be footing the mortgage if your renters move out. Make sure your monthly budget can handle it before you jump in.
31. Going along with the gang—Everyone loves getting together with friends. However, those ‘friends’ who are there and expect you to pick up the tab aren’t going to be good for your budget. Chances are they aren’t there for your company. Don’t waste your time, energy or money.
32. Penny stocks—Transparency is important when investing. Penny stocks are reminiscent of the wild west. The historical returns aren’t there like other investments. Just don’t waste your money.
33. Medical Bills—They can ruin even the most dedicated saver if you aren’t careful. Make sure you carry health insurance. You can’t afford not to.