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7 Deadly Sins of Personal Finance

By , September 4th, 2008 | 15 Comments »


If you are reading this, I can safely assume that you are concerned about saving money and maximizing your financial resources. Unless you have unlimited wealth (which I can also safely assume is not the case), then you must be financially wise to take full advantage of the money you have.

The following list in reverse order details 7 deadly sins of personal finance illustrated with personal examples. These transgressions delay or possibly prevent some from ever reaping the benefits of good financial management. Avoiding these sins won’t make you a millionaire overnight, but they can improve your financial situation in surprising fashion.

Number 7. Failure to track expenses

Until I started recording every penny of discretionary income, I wasn’t exactly sure where my money went. I knew how much money I spent every month, but couldn’t give an accurate breakdown. I began to document every dollar that left my possession. That soon revealed that I was overspending on food eaten away from home. The total dollar amounts spent on lunches out, snacks, and the occasional dinner at a restaurant was more than I expected. I quickly cut down in that area and started saving approximately $50 per month.

Number 6. Emotional shopping

Buying things (anything, but clothes and household items in particular) was how a friend consoled herself when depressed and celebrated when she was happy. Spending money was attached to emotions and not to need. This is a surefire way to spend money unwisely. One of the major problems is that this may go unrecognized by the spender. When emotion gets involved, logic tends to flee like a frightened rabbit.

Number 5. No savings

This one should go without saying, and is probably on every website and book about personal finances. At some point in everyone’s life, we will be hit with an unanticipated event that busts our budget. Without savings to cover those events, most will wind up losing even more money because of interest on the loans, credit cards, etc. It’s a downhill spiral from there. A friend once had some emergency (and expensive) dental work done at about the same time the transmission failed in his car. With no savings and no extra room in his budget, he was forced to pay with credit cards. Even after a couple of years, he is still paying off the credit card with something like $50 month going toward interest.

Number 4. Failure to comparison shop

One of my biggest thrills from shopping is to purchase something that I need at a reduced price. Granted, I do not get a lot of thrills from shopping, but knowing that I saved money by simply looking around really does it for me. There are 2 things to consider here. The first is that I don’t buy things just because they are on sale or priced cheaper than another store. If I don’t need it, then I don’t buy it. The second is that there is a trade-off between money saved and time spent comparing prices. Comparison shopping works best when the purchase isn’t urgent and can be stretched over several days, weeks, or months. I casually review prices over time when it’s convenient and don’t make special trips just to check prices. For me, e-bay works perfectly in this regard. I can simply search for the item(s) that I need and monitor prices over time. When the price is right I pull the proverbial trigger. I almost never buy clothing at retail stores anymore as I can usually find what I need on e-bay; still new in the package, but for prices that are up to $40 or $50 cheaper per item. I have semi-expensive taste in clothing, so this really pays off.

Number 3. Paying for things you don’t use

That was a difficult statement for me to even type. Who in the world would pay money for something they don’t ever use? That is simply ludicrous, but it happens more than one would think. Someone just the other day told me he subscribes to all the movie channels and extra sports channels; yet in the same conversation declared that he rarely watched television. Either he lied about rarely watching television, or is inane for paying extra for channels that he rarely, if ever, watches. The same principle applies to magazine/newspaper subscriptions, home telephone options, and probably the most popular one — gym memberships.

Number 2. Nickel and diming

I once knew a young lady who had a rather decent amount of discretionary income, but lamented that she never had enough money to buy anything “nice”. After I was around her for a few months (okay, she was my girlfriend), I understood why. She trickled it away buying lots of inexpensive stuff. A 5-dollar necklace, a 9-dollar CD, a little box of candy for a friend, and before she knew it, she couldn’t afford to buy a 60-dollar pair of jeans. I eventually became comfortable enough with her to mention that I was able to buy nicer items than her even though she spent more money. Fortunately for me she didn’t overreact and even started saving those nickels and dimes for larger purchases.

Number 1. Failure to set priorities

If you want to maximize the use of your personal finances, you need to know what is most important. Is it a vacation? Is it a new home, paying off debt, a new car, saving for your child’s college? Whatever that priority is, if you don’t consciously make financial decisions toward that priority, you may likely never reach that goal. My wife’s and my number one financial priority a few years back was to build a new home on a large rural lot. In every decision we made, the impact on that priority was considered. Did we really need a new television, or could we live with the one we had and put that $500 toward the down payment? We could go out to dinner and a movie every weekend, or use that money to upgrade the cabinets. Without a clear understanding of what we wanted, our goals would have been delayed several years. Now we have new priorities: finishing the basement and paying the mortgage off in 12 years. Once again, each and every financial decision considers the impact on those priorities.

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