It was not until I reached 30 that I started to turn my own financial life around. Unfortunately, by then, the damage was done. In retrospect, I often knew the decisions I was making were not-so-smart, but I did them anyway because I could always “pay it off later” or “just save more money when I’m older.” One of the cruel facts of life is that it gets harder when you get older.
Hopefully, by sharing a few of these bad money moves, it will prevent others from doing the same. And don’t worry, if you are over 30 and still doing these things, it is never too late to start living frugal.
Is Tuition Cheaper at the School of Hard Knocks?
1. Take out three times as much in student loans as your first year’s salary. I’m all for following your passions, but if your passion only pays $35,000 a year, please reconsider borrowing $100k to get the required degree. Here’s more from a couple that owed more than $100,000 in student loans.
2. Trash your college enemies on Facebook and Twitter. Might be funny now, but your future boss probably won’t see the humor in it. Remember, the Web is an open book, and down the line things you say online can and will be used against you.
3. Trash yourself on Facebook and Twitter. The picture of you half-naked partying on the beach at Spring Break will probably get you a few more followers, but remember that future boss?
4. Go to school out of state because you like the football team. I included this one because I did it. Well, sort of. See, I thought I could walk-on for my favorite school’s football team, forgoing scholarship opportunities in-state. It was a dumb move, and one I paid for during the remainder of my 20s.
5. Just get a degree…in anything. Don’t “just get a degree” for the sake of getting a degree. Learn something, and prepare to apply it in the real world.
Work to Live, Don’t Live to Work
6. Accept a job you hate right out of school because it pays a lot. This ties in with student loans. Many graduates are so saddled with debt, they have little choice than to go after the biggest salary, even if it isn’t the best opportunity.
7. Form a partnership with three old fraternity brothers from college. It’s been said the only type of ship that won’t float is a partner-ship. Let the one with the most capital start the business and hire the other two. Much cleaner, and if the business fails, you can all walk away and still be friends.
8. Borrow thousands to start a new business. Entrepreneurship is the spirit that built this country, and I’m all for it. However, consider saving and starting up with cash.
9. Accept your first job offer without negotiating. A little wiggle room often exists in salary ranges, schedule flexibility, paid days off, etc, but you have to ask.
10. Spend $2,000 on your new corporate wardrobe before getting your first check. One of the classic mistakes by new earners. As with most things, it pays to pay with cash. Buy a couple nice outfits for interviews and your first day on the job, but beyond that, make do with what you’ve got until you get your first check or two. Then pay cash to add a new outfit to your wardrobe over time.
The Borrower is Slave to the Lender
Payday Loan Place Window Graphics on Flickr by taberandrew
11. Cosign a car loan for your best friend. I no longer borrow money to buy cars. And I especially wouldn’t borrow money to buy someone else a car, which is essentially what you do when cosigning a car loan. As a cosigner, you are on the hook if they default. And if they need a cosigner, there’s a good chance they will.
12. Give up credit virginity for a free t-shirt. When I was in college, I signed up for a Discover Card before a football game because they were giving away free t-shirts. Dumb. My running joke is that t-shirt probably cost me $500 in interest charges over the next few years.
13. Borrow money from your parents. What kid wants to borrow money from their parents? Not only does it change the relationship between parents and kids, it makes it tough to declare financial independence when we constantly have to turn to the First National Bank of Mom and Dad.
14. Pay off a credit card with a credit card, without closing one of them. Performing a balance transfer from a particularly high-rate to a low-interest rate credit card makes sense in the short run. That is, unless you fail to close the old credit card. If you leave both accounts open, chances are you’ll eventually wind up with double the debt.
Cars Don’t Make You Any Sexier
15. Buy a car because you can “afford the payments.” Ever wonder why car dealers advertisers the cost of a car in monthly payments? It’s because writing $32,000 in window paint isn’t quite as catchy as $379 a month (for 60 months with a balloon payment at the end). See, it just doesn’t have the same ring to it, does it?
16. Drive like and idiot. Driving like an idiot can cost you big time. Makes it hard to save money on car insurance when you are collecting traffic tickets right and left. Not to mention the hit you’ll take on gas mileage.
17. Refuse to buy a used car because you don’t want someone else’s problem. This tired saying keeps coming up when a discussion on used cars takes place. A car transforms from new to used the second it leaves the car lot. A well-maintained, previously owned car, can save you thousands of dollars over a new model.
18. Buy a new car because it gets better gas mileage. Gasoline prices continue to climb, but it’s not an excuse to go and take out a loan on a new car with better gas mileage. In most cases, you’d have to drive thousands and thousands of miles to break even. Buy a car for better gas mileage if you already planned to buy another car, and you are concerned about the environment and your wallet.
19. Don’t shop for car insurance. No seriously; take the first offer you get. Don’t shop around for a better car insurance quote from places like esurance.com. Yeah, that will save you tons of money.
Insurance? That’s for Old People
20. Go without health insurance–even catastrophic insurance. When you are in your 20s, the last thing you are thinking about is getting sick. After all, you were just a teenager a few short years ago and the feeling of invincibility hasn’t quite worn off. Don’t take the risk. At a minimum, look into a health savings account or similar high-deductible plan that will cover you in the event of a major illness.
21. Turn down cheap life insurance because you don’t have dependents. If you die without dependents, someone may not be counting on your income, but it will still cost money to settle your final expenses. Don’t transfer that burden to your parents, or a close friend, because you were too cheap to pay a small premium for affordable life insurance.
22. Refuse to find disability insurance. After all, you are only 26, right? Who becomes disabled at 26? A lot of people. Illness, accidents and other bad things happen to young people, who are more likely to survive them disabled than die. Protect your new salary by finding disability insurance.
23. Don’t go to the doctor. Again, here’s that invincibility thing. At a minimum, follow your physician’s guidelines on annual or semiannual check ups. A little preventive medicine can go a long way towards extending your life and saving you money.
Going to the Chapel and I’m Going…to Need a Truck Load of Money
24. Marry the wrong person for the wrong reasons. Choice of spouse weighs heavily on future success or failure. They say opposites attract, but I’m not sure they stay together forever. Find someone who shares your dreams on subjects that matter most to you.
25. Spend six months of salary on an engagement ring. If you have to spend half a year’s salary on an engagement ring to impress someone you might want to think twice about your choice of partner. I’ve always thought one month’s salary was a good rule of thumb, and of course, pay cash. Further reading: Save Money on a Diamond Ring
26. Blow thousands you don’t have on a wedding. If you are debt free, and are marrying a partner who is debt free, stick to a reasonable wedding and avoid putting yourselves, or your parents, deep in debt.
27. Refuse to accept your partner’s debt. When you marry, you become one. So your spouse’s debts are now your debts. Remove “mine” and “yours” from your vocabulary when discussing debt and marriage.
Home, Bitter Sweet Home
28. Buy a house without an emergency fund. Something interesting happens you buy your first home. Right away, your name is put on a list of those who should be tested, financially. I’m being a little sarcastic here, but it does seem like the minute you stretch to buy a home without proper savings, something will break causing you to immediately reach for the credit cards.
29. Share a mortgage with your boyfriend/girlfriend. I’m not being a prude here. Even if you decide to share living quarters with someone before marriage, please avoid sharing a mortgage (or lease) with them. If you split up, and chances are you probably will, the financial impact is a lot messier with joint ownership.
30. Sign a long-term lease based on the salary you think you will earn out of college. Wait until the ink has dried on that first job offer letter before signing a lease (or a mortgage) for your first place. Better yet, wait six months to make sure you really can afford the payment, else you risk being house-poor right out of the gate.
31. Don’t put any money down on that new mortgage. As many have discovered the hard way, homes can lose value. If you finance 100% of your new home, you have zero breathing room should your home lose value and you be forced to sell. Buying a new home is not cheap, but try to buy yourself a little breathing room by putting 10-20% down (close to 20% is best to avoid paying private mortgage insurance).
32. Stretch to get into a new home because it is a good investment. Repeat after me – my home is not an investment. We need to break this thinking that all young people should buy homes because they are a great investment. Yes, they can increase in value, but like all investments, they can lose value, too. The difference is, when your shares of Apple go down, you aren’t putting the roof over your head at risk.
Kids Are Expensive, and Worth Every Penny!
33. Don’t get out of debt before having a baby. Any parent will tell you, things are difficult before kids are even more difficult after kids. Getting out of debt is no exception, so if possible, try to become debt free before having kids. Having said that, I believe children are a blessing, so don’t put off having kids just because you are in debt.
34. Offer to pay expenses for your grown children. This move alone will guarantee that they will never grow up.
35. Wait until kids are 16 to start saving for college. Who even thinks about saving for college until they are 16, right? Problem is, tuition increases and inflation become factors from the moment your kids are born. You have to save diligently to stay ahead of them both.
36. Give your six year-old a cell phone. My oldest is almost 11 years-old. After four years of begging, I’m starting to come around on the idea of her having a cell phone to take to sleep overs, sporting events, etc. (situations where we may need to contact her or vice versa). Her phone will be a real boring one with the only features being strong parental controls.
Investing in Your Future
37. Open an online brokerage account to trade single stocks before funding a 401 because you want to get rich quick. This point really doesn’t need further explanation. In my own experience, I remember opening an online brokerage account to trade single stocks in the late 90s because even people my age were making thousands in their sleep. Problem was, I got in at the top, was poorly diversified, and worst yet, I wasn’t contributing to my retirement account at the time. Talk about needing to re-prioritize!
38. Pass on a Roth IRA. Opening a Roth IRA at an early age may just be the single best retirement strategy for young people. I know you can’t get the earnings until your 59 1/2, but when you do, they are tax free! And don’t forget, in the even of a real crisis, you can withdraw Roth IRA contributions at any time, tax and penalty free.
39. Dump all extra savings into company stock. One of my first jobs was for Lowe’s (the home improvement store). I worked with a guy in his fifties who dumped 100% of his earnings into company stock (through the employee stock purchase plan and an outside brokerage account). He obsessed over the stock price because mild swings cost him thousands of dollars from day to day. I just couldn’t live like that.
40. Get your investing advice from late-night infomercials. Who hasn’t been tempted to flip houses, sell MonaVie, or stuff envelopes for hundreds of dollars a month? The problem is, for every legitimate opportunity, there are 1,000 scams.
Shopping, Food and Rock and Roll
41. Shop for clothes with labels that impress your “friends.” It’s time to be a grown up. Impressing your friends with clothes is something we did in high school.
42. Eat out every single meal. Eating out has its benefits. No preparation, no clean up, more social interaction, etc. However, it will clean out your wallet a lot faster than cooking at home. If you are a horrible cook, spend the difference on a few cooking classes.
43. Buy a television that consumes 80% of the square footage of your apartment’s living room. Some plasma televisions cost more than the car I currently drive. Unless you sit 30 feet from your television in a giant living room in a McMansion, it’s hard to justify a television worth more than your vehicle.
44. Don’t set up a monthly budget. One of my high school teachers had a sign hanging in her room that read, “If you fail to plan, you plan to fail.” Nothing could be truer when it comes to managing your money. Get over your fear of creating a personal budget and spend a little time telling your money where to go.
So there you have it; 44 ways to ruin your financial future. Hopefully, you’ll avoid most of these along the way, but even if you don’t, winning with money over the long term is about finding discipline and financial maturity. And that maturity can come at any age – 22 or 42. The advantage of finding that maturity at 22 is that by 42 you could easily reach financial independence, and have limitless opportunities ahead of you.