financial mistakes

Why Teens Fail at Finances

January 14, 2014 By Danielle Warchol 1 Comment

A lot of people are guilty of making financial mistakes, but teenagers are often guilty of making mistakes with money because they don’t know any better. While many adults are guilty of making similar financial mistakes, most adults quickly learn how to handle their money in a way that won’t hurt them further down the line. Listed below are some of the biggest financial mistakes teenagers can make with their money:

Underestimating the Cost of Items

Sometimes buying an item you’ve coveted for a while can be so exciting that you have tunnel vision when it comes to purchasing it. Many big-ticket items come with associated costs. For instance, buying a car means that you’ll also have to pay for car insurance, tires, and gas. Many teenagers don’t realize that there are additional costs for most items after the initial purchase is made.

Buying More Than You Need

Buying more than you need is a common problem for teenagers (and for a lot of adults, too). Sometimes having money means you want to buy as much as possible. So, you might buy ten new pieces of clothing when you don’t really need all those new clothes. Teenagers often let money burn a hole in their pockets.

Spending More Than You Have

Spending more than you have is one of the biggest financial problems for most people, but especially for teenagers. If they have a debit card, it’s easy for them to swipe it without realizing how much money there’s actually in their bank account. A lot of teenagers tend to avoid checking their account balances, which ends up leading to overdraft fees and negative balances.

Buying To Impress

Who hasn’t bought an expensive item in order to impress someone? Maybe they want to impress their friends with their spending habits or go out of their way to impress a boyfriend or girlfriend. Spending money to impress people rarely works out in the long run, but it’s an unfortunate financial habit that some teenagers make far too often.

Trying to Keep Up With Friends

If your friends have the latest gadgets or are always going out to eat, it’s easy to persuade yourself into spending the same amount of money so you own the same things or are able to do the same activities. Sometimes teenagers don’t realize that they may be in a different financial situation than their friends and may feel pressured to spend the same amount of money just to fit in.

Choosing Quantity Over Quality

A lot of teenagers also tend to buy quantity over quality, but sometimes the cheaper, multi-pack items end up being a poor purchase. For instance, let’s say a shoe store has a deal where each set of shoes is only $10, but the shoes are so poorly made that they need to be replaced every month. After a year, $120 will have been spent on those shoes. Instead, a well-made pair of shoes could be bought for $50 and could end up lasting for the entire year (or longer).

Not Saving Money

A lot of people are notoriously bad at saving money. Sometimes teenagers don’t realize that they should be saving money for the future. It’s easier to live in the present and not concern yourself with financial problems you may face down the road. But not saving money is one of the biggest financial mistakes that teenagers tend to make, and one they usually regret once they get older.

Not Budgeting

Budgeting is another big financial mistake most teenagers make. A lot of schools no longer teach students how to budget their money, so it’s the last thing on their mind when they see money in their bank account. Budgeting is something teenagers should learn in order to prevent overspending or spending frivolously. Budgeting is also just a good skill for anyone to learn when it comes to dealing with their finances.

Paying Avoidable Fees

Many teenagers also fall into the trap of paying avoidable fees, such as paying a fee for taking money out of an ATM, paying a fee for a late cell phone bill, or overdrawing their bank account. These habits are unfortunately ones that tend to stick, and can follow them into adulthood. Paying fees that could have otherwise been avoided is a huge financial mistake as well as a waste of money.

Spending Money Frivolously

Everyone has, at one time or another, spent money frivolously. Teenagers are prone to spending money frivolously because they don’t really have many other bills or necessities to pay for. However, this can also lead to the creation of poor spending habits, especially when they finally do have to start paying for more important things. Trying to curb frivolous spending habits it something everyone should consider, but teenagers definitely need to understand the problem before they really hurt their finances.

(Photo courtesy of Ed Yourdon)

10 Common Financial Blunders

September 11, 2013 By Jeffrey Strain 7 Comments

There are plenty of steps that you can take to help you become financially successful, but all your hard work will end up being for nothing if you’re undermining the financial success you’re seeking to attain. The financial steps to success are important, but understanding the actions that’ll ensure financial failure are just as important. It usually only takes a single financial blunder to wipe out much, if not most, of the financial progress you’ve made. Here are ten of these blunders that you want to avoid or resolve as soon as possible to ensure the long-term health of your finances.

Spend More Than You Make

This is the foundation of all personal finance. If you can’t live within your means, you’re going to find yourself in financial trouble no matter how much money you make. While you may be able to get way with spending more than you make for a while, it’ll eventually catch up with you. At some point you’ll have to make up the difference and when that point arrives, your finances will not be happy.

Live Paycheck to Paycheck

While living paycheck to paycheck may seem better than living beyond your means, it still ensures failure in trying to meet your financial goals. Again, this applies no matter how much you make. Paycheck to paycheck living fails to take into account unexpected expenses that are a part of life. While you may be able to pull off the paycheck to paycheck game for a while, it’ll only be a matter of time that something unexpected puts you into debt which is a difficult hole from which to escape.

Trying to Keep up with the Joneses

The Joneses aren’t who you are competing against. In fact, what they’re doing and buying likely has very little to do with your own financial goals. The reason that what the Joneses are doing may look appealing is because you have failed to understand your own financial goals. By adopting the goals of the Joneses (who may not know their true financial goals because they may be trying to keep up with the Smiths) instead of figuring out what financial goals are truly important to you, you’ve guaranteed that you will never reach them. Forget the Joneses and take the time to figure out what’s important to you.

Not Knowing Your Financial Goals

If you don’t know where you’re driving, the chances of you getting there are slim. The same holds true with your finances. To succeed, you need to know where you want to be financially. The way to achieve that is by knowing what they are and then creating a map to reach them. Not knowing your financial goals is like wanting to get to a vacation spot using a blank map.

Letting Money Control You

It’s not about how much you make, but if you make enough to do the things that are most important to you. Money is a means to an end, not the end itself (after all, it’s nothing more than pieces of paper printed with ink). Financial success isn’t dependent on how much you have, but rather whether you can you attain what’s important to you with the amount you have.

Failing to Improve Yourself

Your education doesn’t end when you graduate from school. If you’re unwilling to improve yourself, you and your finances will stagnate. Improving yourself is a never-ending process (who do you know that is perfect?) and it’s an essential part of keeping your long-term financial well-being.

Relying on Others to Take Care of Your Money

Rarely do those who take care of your money have the same interest in what ultimately happens to your money as you do (they’re probably more focused on making money for themselves, not for you). While it’s perfectly acceptable to rely on others to give you suggestions and help you think through financial decisions, you should always be an integral part of the decision process. If you rely on others to take care of all your financial interests without you having any oversight, you shouldn’t be surprised when money is invested and lost in ways that you may have never allowed had you known.

Invest in Things You Don’t Understand

If you’re goal is to quickly lose the hard earn money you’ve made and start from square one again (or even in the hole), start investing in things you have no idea about. The problem isn’t that the investments are bad in themselves, but most investments have risks and the only way to evaluate them is to understand the investment. When you have no clue what you’re doing, that usually means that others who do have a clue will make money at your expense. No matter how much uncle Joe talks about what a great investment it is, place your money elsewhere until you are confident you understand everything about it.

Being Financially Afraid

Just as being to aggressive can ensure financial failure, being afraid to take any risk at all will also almost always ensure it. To grow your money to meet your goals means taking calculated risks that bode in your favor over time. Not doing so will result in your finances treading water, if not sinking, and falling short of your goals.

Ignoring Your Finances

It seems that many people believe if they simply ignore their finances, then things will get better or somehow take care of themselves. While it’s a nice hope, it’s nothing more than a fantasy. Reality says that ignoring your finances will lead to all types of trouble that ultimately ensure you fail to reach your financial goals.

These are some of the more common blunders that people make that end up hurting their finances. By avoiding these financially destructive steps, you’ll greatly increase the odds that you’ll meet your long-term financial goals.

(Photo courtesy of Nick Allen)

What to Do When a Big Expense Doesn’t Work Out

May 31, 2013 By Jennifer Derrick 1 Comment

I went to graduate school with another woman who, let’s just say, didn’t end up with the same happy experience that I did. Very early on in the program, it became clear that the program wasn’t a good fit for her. Despite what the school said when they were wooing her, they weren’t really interested in her research interests, she had a hard time finding an advisor willing to help her, and the program wasn’t geared toward the practical job applications she’d hoped for. (It was a training ground for academia, not the real-world.)

She told me that she thought she’d done everything right. She’d researched the program, talked to former students and current faculty and felt like it would be a good fit. But it just wasn’t. She tried to stick with it, figuring she could just gut it out, get the degree and move on. She kept paying tuition, long after it was apparent that things were going downhill. Finally she was so depressed and miserable that she had to get out. Making things worse was the fact that her advisor bailed on her mid-thesis, meaning she’d have to start over and add another year (and more money) to the program.

When we talked, she said, “I hate to quit. I’ve spent so much money and to leave with nothing feels like failure.” I told her that, while it was up to her, she had to decide which was worth more: Her sanity, health, and happiness, or the degree. She ultimately chose to quit. The last time I talked to her was about a year after she left and she was much happier. “Even though I lost all that money, I still feel better than I have in a long time.” This happens to a lot of us, at least once in our lives. We get into a bad investment. We enroll in a degree program that turns out not to be a good fit. We end up in a house in a neighborhood we hate. We buy something like a timeshare that we’re sure we’ll use but end up never using. We start a business that flounders. Whatever it is, most of us end up sinking a lot of money into something that just doesn’t work out.

The temptation in this situation is to keep throwing money at the problem, hoping that things will get better. We hope the investment will turn around. We hope that the neighborhood will get better, or at least we’ll learn to live with it. We keep paying dues on the timeshare hoping that our work schedule will free up so we can travel more. We hope that business will pick up. And, like my friend, we may keep paying tuition in the hopes that we can at least survive until we get the degree. We don’t want to admit we made a mistake.

That’s natural. Most of us don’t want to quit on something we’ve spent a lot of money on. And you do need to give things a solid try and seek ways to fix the problem before you bail out. Is the problem with the neighborhood as a whole, or just with one neighbor? If it’s just with one, can you talk to the person and try to work something out before you move? Is the problem with the problem with the investment itself, or is there something in the fine print that you didn’t understand that could make a difference? Is the problem with your business that there’s no demand for your product, or are you not marketing yourself correctly? Can you do something different? Is the problem with the whole degree program, or just one professor? Is there a way to cut that person out of your program? You may be able to salvage something if you ask careful questions and try different actions.

If the situation just can’t be fixed, though, the best thing you can do is pull the plug. Don’t keep spending money out of some misplaced sense of obligation or desire to “see things through.” Sure, you don’t want to be a quitter, but when something is an obvious bad fit or failure, it’s better to take your losses, learn from the mistake, and move on. Otherwise, you’re just throwing money away on something that makes you miserable, or which isn’t providing you with the benefits that you thought it would. This toxic thing is draining your cash and you need to stop it.

And you might not be out as much as you think. My friend still had the credits she’d amassed that could be transferred to another school. She also had some non-monetary gains. She made new friends and contacts, she learned a lot of material, and she got a better perspective on what she might want to do with her future. The experience wasn’t a total waste. If you have a house you hate, you might still be able to turn a profit on it, or maybe you met a least one decent person in the neighborhood who turns out to be a lifelong friend. That timeshare might work better as a rental, giving you enough income to at least break even while you wait for more relaxed days ahead. With a failed business, at least you learned some things about running a business that you can apply to a venture that’s a better fit.

At the very least, you’ve learned something that will prevent you from making the same mistake in the future. Learning through the school of mistakes is the way most of us learn best. You can learn a lot more about yourself, life, and money through a big screw up than you can from more carefully controlled lessons. There’s value in that, even if it doesn’t seem like it when you decide to walk away.

Slow Down, Save Money

March 19, 2012 By Jennifer Derrick 1 Comment

There are far too many people who are racing around today at breakneck speed. We drive too fast because we’re running late and have too much to do. We gobble down our food because there’s no time to enjoy a meal. We multitask at our desks because we have to get everything done, and get it done right this minute. We’re all under pressure to move faster and do more. The funny thing is that all this rushing around is likely making things worse and costing us more money. Here are a number of examples of actions you may be doing too quickly and why doing these at break-neck speed ends up costing you money.

You Eat Too Fast

You don’t feel full, so you keep eating. You eat more than you need which is expensive, plus it causes obesity which leads to other health problems. You also eat too much “fast food” which also leads to obesity and health problems. Health problems cost money to treat. Even something simple like acid reflux from eating too fast can have long term health consequences, over and above the money you’ll spend on Rolaids.

You Drive Too Fast

You’re more likely to have a wreck and have it classified as your fault. This is going to cost you big money in higher insurance premiums (if you can still find someone to cover you). Then there’s the cost of the speeding tickets. If you cause a big wreck that outstrips your insurance coverage, you could be on the hook for a major lawsuit. Driving too fast and leaping on the gas at stoplights also increases your gas bill. If you speed and wreck often enough and lose your license, you could lose your job if you don’t have another way to get to work.

You Do Too Many Tasks at Once

This is when things start to slip through the cracks because you aren’t paying proper attention. You forget to pay a bill. You don’t double check your figures and overdraw your account. You forget to sign a check and it comes back, with fees attached. You forget to do something important at your job which ends up costing you your job. You might think you’re getting more done, but chances are that important stuff is slipping by you.

You’re Rushing and Not Being Careful

This is when you trip and fall down the stairs. Or when you try to hurry that roof repair and end up falling off the roof. You’re talking on your cell phone and trying to eat your lunch while walking and not paying attention to traffic. You step in front of a car and get hit. Rushing and trying to do too much leads to accidents and injuries.

You End Up Having to Spend More Money

It may seem to make sense to work more hours or take on more jobs. After all, you’re making more money. But when you do this, you’ll probably find yourself having to pay for more childcare, meals out, commuting expenses, and hiring household help. After all, you’re never home to do anything like clean or cook. You’ll also be more distracted and harried, leading to mistakes in all areas of your life. Doing more can cost you more.

These are just a few examples of how speeding through life can cost you money. The solution? Slow down. Be deliberate. Take your time. Do one thing at a time and do it well. Make certain you’re not making silly mistakes that will cost you money. Don’t jeopardize your health by being in such a hurry. Evaluate whether doing more is costing you more. If it is, do less.

I realize that the idea of doing less is almost sacrilegious in our culture. Everything around us screams, “Do more.” But maybe that’s because the advertisers know that the more we do, the more money we spend and lose and that’s to their advantage. Try the contrarian approach. Slow down, think, and carefully carry out your actions. You’ll be safer, healthier, and wealthier than the poor saps who are running themselves ragged.

(Photo courtesy of Loozrboy)

Money Mistakes: Perfection Isn’t Possible

March 12, 2012 By Jennifer Derrick 1 Comment

I get kind of irritated when I see people on financial forums tearing another poster apart because they’ve done something stupid with money. Well, so have we all at one time or another. Perfection with money isn’t possible. Even if your last name is Buffett or Gates, chances are you’ve made some mistakes with money. The trick to doing well financially is to learn from your mistakes and to do better the next time.

To my mind there are two kinds of mistakes with money. There is the kind of mistake that comes from just not knowing any better or getting caught up in a firestorm of bad events, and there is the kind of mistake that comes from deliberately blowing money and not really caring that you’re screwing up. Most people who are posting on financial forums suffer from the first type of mistakes.

When they post, they’re seeking to educate themselves so they can do better going forward. If you don’t care about money or success with money why post on a financial board? People who want to learn are generally the ones who post on finance boards. There’s no need to tear this kind of person apart. They want help. Just be kind and offer it to them.

If perfection with money were possible, we’d all be rich. No one would end up in debt, everyone would live within their means, no one would get surprised with a huge tax bill, and no one would retire unprepared. But it happens. Even people who have it all together can make mistakes. You can chase a bad investment. Forget to update a will. Do the math wrong on your taxes. Balance your checkbook wrong and bounce a check. There are thousands of ways to mess up with money.

I hate when I see other people getting beaten up for their mistakes. I hate when I see them beat themselves up, too. It’s one thing to admit the mistake and move on. It’s another when you start telling yourself (or others tell you) that you’re a screw up, no good with money, or a failure. You’re not. You’re just human. Figure out what you did wrong, fix it, and then vow not to do that again. Will you make another mistake down the road? Probably. The trick is to avoid repeating the same mistakes over and over again. Learn, fix, and move on. When you mess something else up, learn about it, fix it, and move on. We all make mistakes in every aspect of our lives and money is no different. All you can do is the best you can do.

None of us are ever going to be perfect with money, so don’t tear other people up about their mistakes. You’re not perfect, either, and having a negative attitude makes you look like a jerk. Now, if you see someone who keeps doing the same stupid thing over and over again, that’s different. This person probably has no real interest in learning, and instead would rather play the victim. Rather than tearing them up, though, offer your advice and if they don’t turn things around, just ignore them. But for people who are genuinely trying, try a little compassion and some helpful advice. And if it’s you who’s beating up on yourself, stop it. Perfection isn’t possible. Do the best you can do. That’s all you can ask of yourself.