Everyone wants to be smart with their money. The problem lies in the sheer volume of common wisdom and advice available. Sometimes what you hear is good advice from someone who has experience and an online masters in finance. Sometimes friends might try to impose their advice on you, which might be good in the short term, but comes to haunt you later. Sometimes it’s simply a bit of common lore that no longer applies. Are you making any of these financial mistakes and sabotaging your future?
Anchoring on the First Advice You Hear
The phenomenon of anchoring is quite common, yet many people never realize it’s what they’re doing. Often, when you begin to research a topic like finances, you tend to trust the first piece of advice or resource you read. It makes sense; after all, the first person you ask is likely someone you trust. The problem comes when that advice isn’t necessarily good advice. Take a step back and look at your assumptions before you make a financial decision. Is it the right choice?
Avoiding the Future
Everyone says you should start saving for retirement early. Yet this advice often falls on deaf ears. When you’re young, it feels like you’ll never grow old. By the time reality kicks in and you see the signs of aging, it’s too late. Every dollar you invest in retirement early is hundreds or thousands you have later when you need it. Conversely, every dollar you fail to invest is compounded interest you lose.
Falling for the Gambler’s Fallacy
Past events are not necessarily an indicator of the future. We grow up learning and believing in cause and effect, but that can shoot you in the foot financially, especially when it comes to investments. When you see a particular stock fall in price month after month, you may be tempted to believe it will continue to fall and sell your holding. Often, that choice to sell comes right before the stock rebounds. While trends aren’t meaningless, they shouldn’t be the deciding factor in your investment decisions. In particular, beware of chasing hot stocks. A company with a fresh product may see a quick rise in their stock price, but if you buy in on the hope it will continue to rise, you might end up purchasing its peak price.
All too often, financial planning seems to be about managing the income you have. How do you cut your expenses, lower your payments and invest a few dollars more? These are all valid options to pursue, but you should also examine the other end of the financial pipeline. Sometimes you can take a few minor steps to improve your income. Maybe you can take a training course to become eligible for a raise. Maybe you’re experienced and qualified for a promotion that you can snag, if you apply. Manage your career, bolster your income and you’ll have more leeway with your finances.
Four times a week, you swing by the local fast food joint for lunch. What is that unhealthy food costing you? It might be cheaper financially than packing your own lunch, or it might not, depending on the meals you pack. More importantly, junk food takes a toll on your health. You may save a few dollars a week on food, but when a few medical bills come in, you’ll find that savings gone in a flash.
Money from a credit card is DEBT. It has nothing to do with saving, investing, earning and developing financial stability. It is one of the highest cost forms of debt you can have. Stay away from using it except in emergencies. Pay it off as soon as possible to avoid those nagging fees later on.