When I was in college, I eagerly applied for a credit card. It seemed that financial freedom was mine. All I had to do was swipe!Unfortunately, I racked up a decent amount of high-interest credit card debtduring my college years. Pretty soon, I was paying more in interest than I was just about anything else. I couldn’t make solid progress in getting rid of my debt without paying a lot more than minimum payment, and I wasn’t able to do some of the things I wanted to do.
Experience is a good teacher, and I learned my lesson about high-interest credit card debt. The good news is that it’s possible to move beyond our mistakes.
The same is true with all manner of financial mistakes. The trick is knowing when you've made one, so you can fix it. But I'm going to make it easier for you. I'm going to tell you about seven financial errors you are probably already making -- and how to fix them. Here they are:
1. Carrying High Interest Debt
This is one of the worst things you can do for your finances. High interest debt, such as credit card debt, leeches away your wealth. The interest you pay doesn't benefit you; instead, it goes straight into someone else's pocket.
Rather than carrying debt with high interest, which provides you no leverage, pay down the debt and focus on growing your wealth.
2. Insisting that ALL Debt Must Be Paid Off Immediately
There is another side to the debt coin. Some say that all debt is bad debt. However, some types of debt aren't that terrible.
If you have low interest mortgage debt or student loan debt, paying it off instead of investing can be a big financial mistake. I have a student loan at less than 2% interest, and I get a tax deduction for the interest I pay. My investment portfolio has averaged between 5% and 11% annual returns in the last few years.
My colleague Amy Calistri enjoys similar results with her real-life portfolio for the Daily Paycheck newsletter. And now, her research team has uncovered a little-known group of "Hidden High-Yielders" you won't know about if you read the mainstream media. This report will tell you all about it.
So with returns like the ones Amy experiences, I'd be silly to put extra money toward paying down such a debt when my potential returns are much better.
3. Lack of an Emergency Fund
An emergency fund can make a big difference in your ability to handle unexpected financial setbacks. If you don't have some emergency source of funds, you are more likely to fold in the face ofunemployment, medical problems or natural disaster.
I have a small amount in a highly liquid savings account, and I keep the rest in a taxable investmentaccount. A few years ago when our basement flooded, I sold some of my stocks at a loss to get thecapital to cover the costs. Not only did I have the money I needed, but I also received a tax deductionfor my capital loss.
4. Ignoring Employee Benefits
Do you know what benefits you are entitled to through your employer?
Chances are that you are not maximizing them. Whether it's getting the full employer match for your retirement account, a discounted gym membership, or some other benefit, you might be surprised at what you can find.
Review your health insurance plan options as well. Comparing available plans can help you choose the best coverage for the money.
5. Failure to Research Major Purchases
Rather than buying on impulse (with a credit card as often as not), research your major purchases -- and even your non-major purchases. Many consumers waste thousands of dollars over their lifetimes because they don't comparison shop for the best value.
This doesn't mean that you get the cheapest item, though. Research should help you get the best value for your money, even if it means paying a little bit more for higher quality.
6. Lack of Investment Diversification
Many investors don't pay attention to their portfolios, and eventually they end up with asset drift.
Investing in funds can lead to overlap if you aren't careful. There are a number of pitfalls associated with investing if you aren't properly diversified in terms of asset class, geography and sector/industry.
Create an investment plan with an allocation that is likely to meet your goals, and then pay attention to ensure that you remained appropriately diversified.
7. Not Sharing With Your Partner
If you have a life partner, you should be sharing financial information and discussing shared goals. My husband and I have some different spending priorities, but our overall goals are the same, and we work toward them together. And, even though he leaves most of the money management to me, he does like to check in every once in awhile to see where we are.
The Investing Answer: Don't let financial mistakes derail your future. Honestly evaluate your money situation and your habits. Acknowledge your mistakes and work toward fixing them so that you make the most of your financial resources.
The same is true with all manner of financial mistakes. The trick is knowing when you've made one, so you can fix it. But I'm going to make it easier for you. I'm going to tell you about seven financial errors you are probably already making -- and how to fix them. Here they are:
1. Carrying High Interest Debt
This is one of the worst things you can do for your finances. High interest debt, such as credit card debt, leeches away your wealth. The interest you pay doesn't benefit you; instead, it goes straight into someone else's pocket.
Rather than carrying debt with high interest, which provides you no leverage, pay down the debt and focus on growing your wealth.
2. Insisting that ALL Debt Must Be Paid Off Immediately
There is another side to the debt coin. Some say that all debt is bad debt. However, some types of debt aren't that terrible.
If you have low interest mortgage debt or student loan debt, paying it off instead of investing can be a big financial mistake. I have a student loan at less than 2% interest, and I get a tax deduction for the interest I pay. My investment portfolio has averaged between 5% and 11% annual returns in the last few years.
My colleague Amy Calistri enjoys similar results with her real-life portfolio for the Daily Paycheck newsletter. And now, her research team has uncovered a little-known group of "Hidden High-Yielders" you won't know about if you read the mainstream media. This report will tell you all about it.
So with returns like the ones Amy experiences, I'd be silly to put extra money toward paying down such a debt when my potential returns are much better.
3. Lack of an Emergency Fund
An emergency fund can make a big difference in your ability to handle unexpected financial setbacks. If you don't have some emergency source of funds, you are more likely to fold in the face ofunemployment, medical problems or natural disaster.
I have a small amount in a highly liquid savings account, and I keep the rest in a taxable investmentaccount. A few years ago when our basement flooded, I sold some of my stocks at a loss to get thecapital to cover the costs. Not only did I have the money I needed, but I also received a tax deductionfor my capital loss.
4. Ignoring Employee Benefits
Do you know what benefits you are entitled to through your employer?
Chances are that you are not maximizing them. Whether it's getting the full employer match for your retirement account, a discounted gym membership, or some other benefit, you might be surprised at what you can find.
Review your health insurance plan options as well. Comparing available plans can help you choose the best coverage for the money.
5. Failure to Research Major Purchases
Rather than buying on impulse (with a credit card as often as not), research your major purchases -- and even your non-major purchases. Many consumers waste thousands of dollars over their lifetimes because they don't comparison shop for the best value.
This doesn't mean that you get the cheapest item, though. Research should help you get the best value for your money, even if it means paying a little bit more for higher quality.
6. Lack of Investment Diversification
Many investors don't pay attention to their portfolios, and eventually they end up with asset drift.
Investing in funds can lead to overlap if you aren't careful. There are a number of pitfalls associated with investing if you aren't properly diversified in terms of asset class, geography and sector/industry.
Create an investment plan with an allocation that is likely to meet your goals, and then pay attention to ensure that you remained appropriately diversified.
7. Not Sharing With Your Partner
If you have a life partner, you should be sharing financial information and discussing shared goals. My husband and I have some different spending priorities, but our overall goals are the same, and we work toward them together. And, even though he leaves most of the money management to me, he does like to check in every once in awhile to see where we are.
The Investing Answer: Don't let financial mistakes derail your future. Honestly evaluate your money situation and your habits. Acknowledge your mistakes and work toward fixing them so that you make the most of your financial resources.
P.S. -- As I mentioned, the Daily Paycheck team has discovered a glitch that delivers investors a secret 11% income stream and pays up to seven times more than the news media are reporting. Find out more here.
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