Photo (cc) by cukuskumir
Sometimes, things in life aren’t always as you might reasonably expect them to be – and many defy all sense of logic.
For example, several years ago, a reasonable person watching Justin Bieber sing on a city sidewalk for spare change would most likely assume the kid wasn’t destined for much success in the music business. Of course, that assumption turned out to be totally incorrect, as he is now a pop music superstar. (Go figure.)
In the crazy world of personal finance, there are also a lot of moves that people tend to shy away from for any number of reasons, either because they assume them to be questionable or ill-advised, or they go against conventional wisdom. Sometimes, people simply refuse to do them for personal reasons.
Here now are a host of personal finance moves that people often avoid making even though they don’t have to – or really shouldn’t…
1. Renting a home. Home ownership has its benefits. However, renting makes sense for folks who plan to be in their home for a short time, and/or fear equity loss in a declining market. Besides, after taxes, the annual cost of owning a home is typically more than the cost of renting. You can calculate the price-to-rent ratio to help determine if renting may be the right decision for you.
2. Using credit cards. Many people unjustly fear credit cards. However, when used wisely and responsibly, credit cards provide valuable benefits that cash simply can’t, including consumer protections, cash dividends, and other rewards. They also help establish and build one’s credit score, which is especially valuable when shopping for long-term credit to buy a home or car.
3. Not paying off the mortgage early. When it comes to 15- vs. 30-year loans, the conventional wisdom is to strive to pay off the home mortgage as early as possible. However, not doing so has its advantages too, especially if you’re in a high-inflation environment – or expect one to emerge in the future.
4. Splurging. Splurging every once in a while is perfectly fine if you’ve built up an emergency fund, are saving for retirement, and have eliminated all of your credit card debt. The secret is to do it in moderation.
5. Letting your kids fail. It may seem cruel, but parents who aren’t afraid to let their kids spend their money on ill-advised purchases (especially those with limited shelf lives) are actually doing them a favor. Experience is a terrific teacher and, with respect to personal finance, it’s better they err early when the impacts are relatively benign. Those “wasted” dollars are money well spent – an invaluable investment in your kids’ personal finance education.
6. Buying a used car. Sure, new cars are great, but they’re an extremely expensive proposition. Financially, they make little sense. The truth is, folks who can live without that new car smell, and are willing to pay for occasional maintenance and repair costs, will get maximum value by buying used instead of new.
7. Loaning money to family. There’s no problem at all with this as long as you are willing to accept that you may never get your money back.
8. Filling a new home with hand-me-down furniture. Here’s a tip for first-time home buyers who are just starting out and find themselves short of cash: It’s not against the law to buy a new home and fill the rooms with hand-me-down or used furniture – or even leave a room or two completely empty. Patience is a virtue.
9. Asking for a lower price. Why is negotiating considered taboo? I’m not suggesting you should go into a grocery store and start negotiating down the price of canned corn. You have to be reasonable and pick your spots. However, there are many stores and service providers out there who will negotiate. The trick is mustering the courage to simply ask if you can get a better price. The worst they can say is “no.”
10. Saying no. Speaking of “no,” we all want to be liked. So it’s not surprising that for many people, myself included, saying no can be extremely difficult at times. Unfortunately, one of the biggest risks to our personal finances is the inability to say no, whether, for example, it’s to satisfy a friend asking you to cosign a loan – or even to yourself when being tempted to keep up with the Joneses.
11. Buying store-brand labels. As my unscientific blind taste tests have proven time and again, sometimes it makes absolutely zero sense paying a premium for name-brand labels. Believe it or not, those bargain store-brand labels are often just as good (if not better) than their name-brand counterparts.
12. Paying extra for quality. It’s true that it often pays to go cheap, but sometimes it’s more cost-effective in the long run to pay a higher price for a quality product than trying to “save” money by getting an inferior product. This is especially true when buying products you intend to keep for a long time.
13. Attending a lower-cost state college or university. There’s no shame in attending a lower-cost state college or university. They often provide a higher return on your education investment. And there’s nothing worse than graduating from a big-name university with $200,000 in student loan debt and a new job that earns $40,000 per year.
14. Bypassing college. Then again, college is not for everybody. Many people would be much better served – and financially better off in the long run – going out on their own, gaining real-world experience doing what they love, and then starting their own business. If you don’t believe me, just ask Justin Bieber.