Filed under: Personal Finance, Budgeting, How to Save Money, Saving
By Maryalene LaPonsie
You're no dummy, right? Then you need to stop making dumb money moves. If you're not sure what those are, Money Talks News finance expert Stacy Johnson is here to tell you. I can count six of these dumb money moves as ones I've made at some point in my life. How about you?
1. Carrying a Credit Card Balance When You Have Money in the Bank
Actually, we could have put the period after the word "balance" in the sentence above. Credit cards are powerful tools and can give you some pretty nifty rewards, but it's dumb, dumb, dumb to carry a balance. It's even dumber to carry a balance when you have money in the bank.
Your savings account is making what, 0.1 percent interest? And your credit card interest rate is probably at least 10 to 20 percent, right? Mathematically, it makes no sense to leave that money languishing in your savings account. Of course, you don't want to leave yourself without any emergency cushion, but you should think twice before joining the households that are carrying a credit card balance despite having plenty of cash to pay it off.
2. Going Into Debt for Items That Lose Value
A related dumb money move is going into debt for items that lose value. Buying a house with a mortgage can be a smart financial move because you can almost always count on it appreciating (i.e. gaining value) over time. But think about your credit card debt. What did you buy with that money? Do you still have it? If you do, could you sell it for what you paid?
I'll go out on a limb and say the answers to those last two questions are maybe "no" and "definitely not." Rather than go into debt and pay outlandish interest for items that are quickly tossed or become worthless, save your pennies and pay cash instead. If you're not sure how, you may be making dumb money move No. 10 below.
3. Buying New When You Could Buy Used
Staying on the spending theme for a moment, let's talk about buying new stuff all the time. It's a dumb money move that can cost you oodles of money. Certainly, there are some items we don't recommend you buy used. But for almost everything else, from clothes to cars, you can usually find used versions that are nearly as good as the new ones but cost a fraction of the price. You can read this list of the 14 things you should always buy used.
4. Spending Money on Stuff That You Almost Never Use
Even worse than buying something new when you could buy used is buying something new that you'll only use once or twice a year.
Power tools for an impulse weekend project instantly come to my mind, but people make all sorts of purchases for items they will almost never need again. From tables for your teen's high school open house to a boat for your vacation, you may be better off renting than buying. Not only can it be cheaper, but you aren't stuck maintaining and storing these items for years on end.
Another option may be to share purchases of seldom-used items. For example, see if your neighbors want to pitch in for a lawn mower and garden tools that you can keep in a communal shed for all to share.
5. Failing to Cancel Trial Subscriptions or Return Unwanted Stuff
I'll raise my hand and admit this is a dumb money move I continue to make. My most recent gaffe came late last year when I was part of a wedding party. I couldn't make it to a local store to buy some clothes I needed, and I ended up purchasing online. Knowing time was short, I bought two sizes with the intention of returning whatever didn't fit. That sounded good, in theory. In practice, the unneeded item is still sitting in my breezeway, and the return window has closed.
In addition to failing to return unneeded items, another mistake is failing to cancel trial subscriptions or recurring expenses for services you never use. When you sign up for a free trial, make a note on your calendar so you cancel before being charged. Also, keep your eyes peeled for recurring charges on your monthly statements and cancel any service you haven't used in the last month.
6. Missing Out on Your 401(k) Match
While a lot of dumb money moves are related to spending, some are about saving. Notably, many people make the mistake of forgoing their employer's 401(k) match. This is free money your boss puts in your retirement account on your behalf. The only catch is you also have to be putting money in the account.
If you're not sure if your company offers a 401(k) match, call the human resources department. Matches can vary by company and are usually capped at a percentage of your income. For example, an employer may match your contribution to a 401(k) account dollar-for-dollar, up to 3 percent of your income. Or they may match 50 cents on the dollar, up to 6 percent of your income. No matter the exact formula, you don't want to pass up the chance for free money, do you?
7. Signing Contracts You Don't Understand
I seem to hear about this mistake most often when it comes to mortgages. People agree to adjustable-rate mortgages and then seem surprised when the interest rate goes up. Or they're shocked to learn they haven't made a dent on the principal balance after paying on an interest-only loan for a year.
Of course, this dumb money move isn't limited to mortgages. People also buy life insurance, investments and lease vehicles without fully realizing what they're getting themselves into. The simple fact is, signing contracts you don't understand can be an expensive mistake. The Maryland Attorney General website offers some tips to help you make smart decisions.
8. Forgetting to Set Up a Safety Net
It's dumb to go through life without a safety net. You need a Plan B to spring into action in the event you lose your job, your car engine dies or your child breaks their arm. And one of the best Plan Bs you can have is money in the bank. If you're having trouble getting out of debt and saving cash, here are 14 suggestions to help you save $1,000 by summer.
The other safety net you need is proper insurance coverage. Here are my recommendations for the insurance and financial products you should consider for your personal safety net. Before you buy them though, check out dumb money move No. 9.
9. Paying Extra for Low Deductibles
Assuming you have some money in the bank, raising the deductibles on your insurance policies is a great way to save some cash. For example, the Insurance Information Institute reports increasing your auto insurance deductible from $200 to $500 could save you anywhere from 15-30 percent off your bill. Select a $1,000 deductible, and you could save 40 percent.
However, this strategy only works well if you have money in the bank to cover the deductible when the time comes. In addition, those of you with chronic or serious health concerns may want to steer clear of medical insurance plans with super high deductibles. In your situation, it may be better to pay a higher monthly premium than try to meet a deductible that could, for bronze plans on the government exchange, run as high as $13,200 for a family.
10. Living Without a Money Plan
The final dumb money move far too many people make is living without a financial plan. It's also the dumb money move that can often be directly or indirectly linked to almost all nine mistakes listed above.
You may think writing down financial goals and creating a budget is boring, difficult or depressing. Not to mince words, but I think it's dumb to use those excuses to avoid trying. If you're not sure where to start, we've got plenty of resources for you here. As a first step, read this article on how to make a budget you can live with.
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