Your financial success sometimes depends on making the right moves at the right time.
But even more often, it’s avoiding the wrong moves that will advance your financial happiness. Big mistakes can destroy your chances of achieving your goals.
Here are eight moves to make sure you avoid.
- Borrow against your 401(k) plan. Unless you have a medical emergency and no other possible source of relief, leave your 401(k) plan alone. Not only do you have to pay the plan back with interest and take growth assets out of play, but you run the risk of having to recognize income if you leave your job without paying it all back. Add in the tax and penalty cost and you’ve got a huge uphill climb. Just say NO!
- Neglect to insure against your biggest risk. If you have financial responsibility for others and you fail to insure your future earnings, you are rolling the dice. Your biggest risk is not a dented bumper, it’s your human capital (what you expect to earn in your lifetime). And don’t think enough life insurance to pay off the mortgage is all you need. Just add up your cost of living and see if the elimination of principal and interest would leave your family solvent. And don’t forget to take a look at disability coverage to protect your earnings.
- Ignore your budget. If you don’t know what’s coming in and what’s going out on a monthly basis, you are navigating in the dark above a sinkhole. MAILCHIMP BREAK Chances are, it’s only dumb luck that hasn’t sent you headlong into financial disaster.
- Pay the minimum on your credit cards. Let’s face it, even at zero percent interest, unless you make real progress in eliminating consumer credit, your cards will eventually go to market rates. From there it’s a short slide to harassing phone calls and demands for payment. Get serious about reducing your debt or face the never-ending cycle of being neck deep in payments for the foreseeable future.
- Pay your bills before you save. Financial planning rule number one: pay yourself first and then live on what’s left over. If you don’t begin the habit of saving NOW, then when? It’s easy to pass this one off and say that you will save your bonus, save the money Aunt Matilda sends you for your birthday or save when you finally pay off that credit card. Cut the excuses and just start saving today.
- Don’t seek professional advice when you’re out of your league. Sorry, but understanding how to match your risk tolerance to an appropriate portfolio shouldn’t be left to a website that asks you to answer 12 questions and whoosh…there’s the answer with the right investments. It’s vital that you acknowledge what you don’t know and ask for help. There’s no shame in it—but NOT coming to grips with that fact is like taking a long walk off a very short pier.
- Accept financial noise as truth. Whether it’s the guy in the line at Starbucks talking about a ‘hot stock’ or a web article touting the one investment you HAVE to own, examine this “information” carefully before accepting it as truth. Just because something sounds good, true or realistic doesn’t make it so. If you leap at the ‘can’t miss’ opportunity, chances are you’re going to get burned. Remember, whether it’s the recommendation of TV pundits or your plumber’s brother-in-law’s first cousin, don’t let your internal greed factor lead or you’ve got a great chance at blowing your hard earned cash.
- Sell investments when the markets are down. You know that markets go up and down. You get that, right? Getting nervous and selling on market dips is a shortcut to a hole you might never crawl out of. Down markets are normal, recessions are normal, so selling when you get nervous is just self-destructive. Instead of watching the market, make sure your allocation matches your time horizon and your ability to withstand risk.
Don’t let these decisions ruin your chance at a happy, successful and satisfying financial life. It’s in your hands to make good decisions or put yourself into a ruinous state.