It’s all too easy to make decisions about your finances that you later come to regret, especially in times of economic uncertainty or personal hardship. Some of these decisions are easier to recover from than others, and can be seen as a learning opportunity. Others have far-reaching effects on your financial stability and ability to achieve certain goals, such as saving for retirement or investing.
If this resonates with you, you’re not alone. Even the most financially prepared individuals have made a couple of money-related mistakes at some point in their lives. That doesn’t mean you can’t still bounce back, though — quite the opposite.
When asked, several financial advisors and experts weighed in on some of the worst money moves they — and others — have made. Here are the biggest ones.
Selling Assets Too Early
Your assets include things like real estate, investment accounts and stocks that pay dividends. Many people who are strapped for cash end up drawing from these assets or selling them for a quick buck. While this can be helpful in the short-term, it can lead to major missed opportunities later.
“Hands down the worst money move I made was selling my home after divorce,” said Lakisha L. Simmons, PhD, CEO at The Wealthy AchieveHer. “I sold it because I couldn’t afford it with my single income. I moved to an apartment that was more affordable. However, a wiser move would have been to rent it out so that I could hold on to the home until I could afford to move back in it, let it appreciate and have the renters pay down the mortgage. Since I sold it in 2018, it has doubled in value.”
Skipping the Personal Budget
So many people don’t have a budget, but living without a budget can lead to overspending and make it harder to save money in the long run.
“One of the worst money moves someone can make is to not have a budget,” said Jen Reid, financial planner and the founder of BASE Financial Planning. “Most people think ‘budget’ and feel restricted, or like they have to cut things out of their life. But a budget is just clarity and control over where your money is going and putting intention behind what you are spending, saving and investing. Whether you make a million dollars a year or $30,000 a year, you can benefit from being able to set a plan and really have a conscious awareness when managing your finances.”
Not Taking Advantage of Employer-Matching Contributions
Many companies offer 401(k) plans. Some even offer matching contributions, meaning they’ll pay up to a certain amount of money into your retirement account based on how much you contribute. Many people don’t take advantage of this benefit however.
“We all know living above our means is a bad money move,” said Simmons. “But there is nothing worse than leaving free money on the table. I hear so many stories of people in all income brackets who are not investing in their 401(k) at least up to the company match. That is free money that can help you retire sooner. In addition, the 401(k) is tax-deferred, so it actually reduces your taxes today so you have more money in your paycheck and save for your future.”
Staying in Debt Rather Than Paying It Off
“One of the worst moves people can make with money is living in debt. Debt is stealing from your future, and interest rates are on the rise. Don’t fall for the good versus bad debt marketing. Make getting out of debt a priority, and once you are out, stay out,” said Jay Zigmont, PhD, CFP®, Founder of Childfree Wealth.
“My ah-ha moment with debt came when we paid off my wife’s car,” Zigmont added. “Before that, I thought that I would always have a car payment. I was one of those people who bought a new car every 18-24 months and was OK as long as the payment stayed the same. The problem is that to do this, you end up rolling over negative equity, and the balance starts growing. It is many years later and I can tell you that living a no-debt life is not only possible but it is awesome.”
Using a Financial Advisor Who Charges a Percentage-Based Fee
Financial advisors can be helpful for people looking to build wealth, reduce financial risk and achieve other financial goals. Working with a financial advisor is an investment in itself though, one you should consider carefully before making the decision.
“Another ‘bad’ money move that people make is to use a financial advisor that charges a Percentage-of-Assets fee: the financial industry has been using a 1% annual fee on clients’ accounts as a way to compensate the advisor for making trades on the clients’ behalf. This method and form of payment was understandable when the only way a client could purchase investments was through a trader or broker,” said Reid.
Things have changed with the advent of online brokerage firms and robo-advisors like Vanguard or Betterment.
Instead, Reid suggested that “Working with a financial planner/advisor that will help you make decisions, focus on strategies, educate you on accounts to open and what to invest in is more important. You can pay a flat-fee for services or hourly rate. If an advisor is charging you a percentage anywhere from (1% to 2.5%), you are being overcharged, and it could cost you 28% to 35% [or more] of your portfolio. That’s potentially a lot of your money.”
Inflating Your Lifestyle
Living above your means is one of the biggest money mistakes people make, but so is lifestyle inflation. This is essentially when you start spending more money simply because you’re making more money.
“Another big mistake that folks make when they start making more money is changing their lifestyle,” said Young Pham, a financial advisor and investment analyst affiliated with BizReport. “Let’s say, for example, you are living in a rental apartment where you are paying $3,000 a month. You get a promotion at work and start making extra cash, and then you decide to move to a ‘better’ $4,000-a-month apartment. This is completely unnecessary as it prevents you from making your money work for you.”
Waiting To Invest Until You’ve Got Money
“Another one of the worst money moves I see people make is thinking [they’ll] start investing when [they] have more money,” said Reid. According to her, time is the most powerful tool for investing.
“Starting even with a small amount of money will help you build experience and confidence when it comes to investing. You have the ability to learn and understand what you are doing with smaller amounts, which will support you when you are investing with larger amounts of money,” added Reid. “Too often people don’t feel like they can make a difference with smaller amounts so they do nothing at all waiting until they get more money.”
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