8 Foolish and Costly Financial Fouls — and How to Avoid Them

Everybody makes mistakes, but they’re particularly painful when they cost you hard-earned cash.

Nobody is perfect when it comes to handling finances. But even if errors are inevitable, there is no reason to waste hundreds or even thousands of dollars on financial moves that are proven folly.

Here are eight common financial fouls you can avoid just by exercising a little thought and a lot of prudence.

1. Borrowing to buy depreciating assets

Adam Gregor / Shutterstock.com
Adam Gregor / Shutterstock.com

Problem: Your IOU becomes an OMG when a purchase loses value. That’s why the past housing crisis was so devastating to many families. Everybody who was suddenly left with an underwater mortgage — meaning they owed more than their homes were worth — learned this the hard way.

How to avoid it: Homes typically increase in value, although that’s not always true, as the Great Recession reminded us. Meanwhile, just about everything else loses value after you purchase it. Borrowing money to buy things that decrease in value — like cars — simply compounds the loss.

Ideally, credit should be used to buy only those few things that generally increase in value: a house, an education and maybe a business. If you’ve already dug yourself into a hole, check out “How to Pay off $10,000 in Debt Without Breaking a Sweat.” And if you want to buy those nice things without credit, try “Ways to Make Your Savings Grow Faster Automatically.”

2. Buying a new car

George Rudy / Shutterstock.com
George Rudy / Shutterstock.com

Problem: As soon as you leave a dealer’s lot with a shiny new car, it depreciates 10 percent, according to Carfax. And by the end of your first year of ownership, it will have depreciated another 10 percent. So a new car that costs you $30,000 is worth only $27,000 by the time you get it home and $24,300 one year later.

Registration and insurance are also more costly for new cars.

How to avoid it: For starters, buy used. To get a good deal, remember that there is something of an art to finding a great used car. Check out “It’s a Great Time to Buy a Used Car — Just Take These 5 Steps First.”

3. Saving while in debt

Syda Productions / Shutterstock.com
Syda Productions / Shutterstock.com

Problem: Savings provide a sense of security. But if you pay more interest on your debt than you earn on your savings, you’re going backward.

One possible exception could be debt that comes with a tax benefit, such as mortgage interest or some student loans.

How to avoid it: As a rule of thumb, use low-interest savings to pay off high-interest debt. Otherwise, you will gradually reduce your net worth.

Just don’t sacrifice peace of mind. If you’re in danger of being laid off or you anticipate a big expense on the horizon, retaining cash helps you sleep at night.

4. Buying name brands

michaeljung / Shutterstock.com
michaeljung / Shutterstock.com

Problem: In some cases, name brands are worth the extra cost. But in other situations, brand names are no better than alternatives that can be purchased at a much lower price.

How to avoid it: Don’t pay for a popular brand’s advertising budget. When things are worth the extra money, pay it. But for many items — such as prescription drugs, salt and sugar, and many cleaning supplies — the generic is identical to the branded product.

5. Ignoring your credit

Andy Dean Photography / Shutterstock.com
Andy Dean Photography / Shutterstock.com

Problem: A good credit score is important because it affects loan interest rates, insurance rates, credit offers and even job offers. Yet many people don’t even bother to keep track of their score.

How to avoid it: Understand the true cost of bad credit, and take steps to improve yours. Take a few minutes today, and get a free copy of your credit report at AnnualCreditReport.com. If your credit score is poor, study up on how to boost it.

6. Not asking for a better deal

goodluz / Shutterstock.com
goodluz / Shutterstock.com

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 it: Always ask for a better deal. For ideas on how to haggle and get better deals across the board, check out “15 Ways to Never Pay Full Price for Anything.” There are almost always ways to get a better deal, whether you’re shopping for vacation lodging or haircuts.

7. Paying someone else to do what you can do yourself

PEPPERSMINT / Shutterstock.com
PEPPERSMINT / Shutterstock.com

Problem: Labor is often the most expensive part of home repairs and maintenance. Do you really want to pay the price for gardening, painting, car washing, mowing and cleaning?

How to avoid it: Save that money by doing many tasks yourself. In the process, you’ll gain the satisfaction of self-reliance.

You may decide some DIY projects — like making your own laundry detergent or growing your own vegetables — are satisfying and worth the savings. On the flip side, consider that sometimes backing away from DIY projects will save money or avoid injury.

8. Blowing tax refunds

flil / Shutterstock.com
flil / Shutterstock.com

Problem: Many Americans receive thousands of dollars in tax refunds each year. And many either blow this money all at once or fritter it away.

How to avoid it: Remember that a tax refund is money you overpaid to Uncle Sam. It was your money when the IRS had it, and it is your money when you have it back in hand. Use it to pay down high-interest debt or any of the other options in “Tax Hacks 2017 — 9 Smart Ways to Spend Your Tax Refund.” Don’t squander it like lottery winnings.

If you are getting a large refund, visit the IRS website to adjust what you are having withheld throughout the year. Get as close as you can to what you actually owe, because that refund is really not a bonus — it’s just money that you could have used better if it had been in your pocket during the course of the year.

We’d love to hear about your financial fouls, too. Share them in the comments or on our Facebook page.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Read Next
How to Buy a Refrigerator, Step by Step
How to Buy a Refrigerator, Step by Step

Here’s how I got the perfect appliance at the perfect price.

16 Products That Solve Everyday Annoyances
16 Products That Solve Everyday Annoyances

These items put an end to the daily irritations that bug you the most.

15 Great Amazon Finds You Can Buy for Less Than $5
15 Great Amazon Finds You Can Buy for Less Than $5

These products offer big value at a small price.

12 Tech Gadgets That Make Daily Life Easier
12 Tech Gadgets That Make Daily Life Easier

These products on Amazon will ease worries and simplify your routine.

5 Products You Should Never Buy Generic
5 Products You Should Never Buy Generic

Generic products are a great way to save money, but sometimes the brand-name version is clearly superior.

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Most Popular
10 Things Frugal People Never Buy
10 Things Frugal People Never Buy

If you’re a true tightwad, the mere thought of spending money on these items gives you the willies.

10 Useless Purchases You Need to Stop Making
10 Useless Purchases You Need to Stop Making

You might as well flush your money down the loo if you spend it on these things.

7 Social Security Rules Everyone Should Know by Now
7 Social Security Rules Everyone Should Know by Now

Confusion over Social Security is a shame, considering how many of us will need this money badly.

Why Your Next Stimulus Check Might Be Bigger Than You Expect
Why Your Next Stimulus Check Might Be Bigger Than You Expect

Your third coronavirus payment will be the biggest yet — and possibly even bigger than you realize.

9 Shopping Mistakes to Avoid at Costco
9 Shopping Mistakes to Avoid at Costco

Are you missing out on serious savings at your favorite warehouse club?

If You Find This Thrift Shopping, Buy It
If You Find This Thrift Shopping, Buy It

They don’t make coffee makers like this anymore.

The 16 Cars Most Likely to Last 200,000 Miles
The 16 Cars Most Likely to Last 200,000 Miles

One automaker takes half the spots on a list of the longest-lasting vehicles.

3 Ways to Get Microsoft Office for Free
3 Ways to Get Microsoft Office for Free

With a little ingenuity, you can cut Office costs to zero.

14 Things You Should Stop Buying in 2021
14 Things You Should Stop Buying in 2021

These convenient household products come with hidden costs that you might not have considered.

Is Writing a Check Still Safe?
Is Writing a Check Still Safe?

Every time you pay by check, you hand your bank account numbers to a stranger.

6 Ways to Protect Your Retirement Accounts From Hackers
6 Ways to Protect Your Retirement Accounts From Hackers

Imagine having $245,000 stolen from your retirement account — and not being reimbursed.

8 Things You Should Replace to Improve Your Life Today
8 Things You Should Replace to Improve Your Life Today

Being frugal isn’t smart if you put off replacing these items.

13 Amazon Purchases We Are Loving Right Now
13 Amazon Purchases We Are Loving Right Now

These practical products make everyday life a little easier.

This Is the Most Dependable Car Brand in the U.S.
This Is the Most Dependable Car Brand in the U.S.

This brand’s vehicles are least likely to give drivers repair headaches, according to J.D. Power.

7 Social Security Benefits You May Be Overlooking
7 Social Security Benefits You May Be Overlooking

There’s more to Social Security than retirement benefits.

The 6 Best Investing Apps for Beginners
The 6 Best Investing Apps for Beginners

If you’re looking to ease into investing in the coronavirus economy with just a little money, check out these easy-to-use tools.

7 Hidden Sections of Amazon Every Shopper Should Know
7 Hidden Sections of Amazon Every Shopper Should Know

These little-known departments of Amazon are gold mines for deal-seekers and impulse shoppers alike.

7 Income Tax Breaks That Retirees Often Overlook
7 Income Tax Breaks That Retirees Often Overlook

Did you realize all these tax credits and deductions exist — or that they apply to retirees?

7 Kirkland Signature Items to Avoid at Costco
7 Kirkland Signature Items to Avoid at Costco

Even if it seems you save a bundle buying Costco’s Kirkland Signature brand products, they may not be the bargain they appear to be.

View More Articles

View this page without ads

Help us produce more money-saving articles and videos by subscribing to a membership.

Get Started

Add a Comment

Our Policy: We welcome relevant and respectful comments in order to foster healthy and informative discussions. All other comments may be removed. Comments with links are automatically held for moderation.