Photo (cc) by Will Folsom
Everybody makes mistakes. But while nobody’s perfect, there’s no reason to needlessly waste hundreds or even thousands of dollars.
Money Talks News founder Stacy Johnson – who has shared his own 10 Dumbest Money Moves – names five of the biggest financial fouls in the video below. But it doesn’t end there. We can only fit so many mistakes into a 90-second news story, so be sure to read on for more common money blunders…
Stacy just named his top five financial fouls. Let’s recap why they’re bad, how to avoid them, and then add some more:
1. Borrowing to buy depreciating assets
Problem: Your IOU becomes an OMG when your purchase is losing value. That’s why the housing crisis has been so devastating to many families. Everybody with an underwater mortgage – meaning they now owe more than their homes are worth – learned this the hard way.
How to avoid: While homes have historically increased in value, we generally know beforehand what’s going to lose value – almost everything. And borrowing money to buy things that decrease in value is simply adding to the loss. That’s why credit should ideally be used only to buy those few things that could potentially increase in value: a house, an education, or maybe a business. If you’ve already dug yourself into a hole, check out 5 Steps to a Debt-Free Life. And if you want to buy those nice things without credit, try 5 Steps to Saving More.
2. Buying a new car
Problem: Here’s how Stacy described new-car shoppers in Why I Don’t Buy New Cars…
If consumers want to feel smart, they comparison shop, kick a few tires, and talk to a few salespeople in an attempt to get a decent deal. But even if they drive the hardest possible bargain, that new car is still guaranteed to lose thousands of dollars in value before they can get it home.
3. Saving while in debt
Problem: Savings provide a sense of security, but if you pay more interest on the debt than you earn on your savings, you’re going backwards.
How to avoid: If you’re in danger of being laid off or expecting a big expense, you should collect as much cash as possible. Otherwise, use low-interest savings to pay off high-interest debt. But don’t sacrifice peace of mind. Keeping money in a low-interest savings account while paying higher interest on a debt gradually reduces your net worth, but if it helps you sleep at night, forget the math. Do what makes you comfortable.
4. Buying name brands
Problem: In many cases, name brands are worth the extra cost. But in others, they contain the same ingredients as generics at a higher price.
How to avoid: Don’t pay for a popular brand’s advertising budget. When things are worth the extra money, pay it. But when they’re not, don’t. See 7 Things You Should Always Buy Generic.
5. Ignoring your credit
How to avoid: Understand the cost of bad credit and avoid it. Take a few minutes today and get a free copy of your credit report at AnnualCreditReport.com. Look it over and read stories like 3 Steps to Improve Your Credit History and 3 Tips to Raise Your Credit Score.
6. Not asking for a better deal
Problem: When confronting a major expense, the asking price doesn’t have to be the price you pay. From doctor bills to credit card interest rates, the way to get a better deal is often as easy as asking.
How to avoid: Always be friendly, but always ask for a better deal. Check out Stacy’s Confessions of a Serial Haggler and learn how to get everything from free hotel upgrades to cheaper haircuts for the family.
7. Paying someone else to do what you can do yourself
Problem: Labor is typically the most expensive part of many home repairs. Save that money by doing what you can yourself and gain the satisfaction of self-reliance in the process.
How to avoid it: When it comes to home repairs, check out Know When to Do it Yourself and When to Pay a Pro and Cheap Do-It-Yourself Home Repairs. But don’t stop there. From making your own laundry and dish detergent to Growing Your Own Vegetable Garden, when you can do it yourself, do it.
8. Falling for rip-offs
Problem: The world is full of people promising things that sound too good to be true – and are. The more sophisticated society becomes, the fancier the scams: everything from ID theft to fake charities and contests.
How to avoid it: Follow these Tips to Avoid the Top 10 Consumer Complaints the Federal Trade Commission puts out every year. We also have 10 Tip-offs to Online Rip-offs. But your best defense? Take your time and think with your head, not your heart.
9. Blowing tax refunds
Problem: The average American tax refund this year was over $3,000. Many people either blow it all at once or fritter it away.
How to avoid it: Use the money in the way that best serves your overall financial health, not your immediate desires. Check out 10 Dumb Things to Do With Your Tax Refund. Or, find out if you can have less tax withheld throughout the year in Let Uncle Sam Help You Pay off $5,000 of Debt.
10. Not taking advantage of free tools to help you keep and make money
Problem: You’re disorganized, don’t know how to save well, don’t understand your spending habits, or just don’t grasp the power of modern technology to save you money.
How to avoid it: Welcome to 2011. Check out these stories that harness technology to cut expenses:
- You Don’t Have to Pay for Cable TV
- 3 Ways to Make Money With Your iPhone
- 10 Best Money-Saving iPhone Apps
- 5 Ways to Save Money With Twitter
As Stacy mentioned in the video above, we’d love to hear your financial fouls too. Share them in the comments or on our Facebook page.