Debt Debt is money you owe to someone else. Usually in the form of a loan. Most of these require you to repay more than what you needed- i.e. a mortgage. I’m currently paying 4.25% on my mortgage and, if I pay on it for 30 years, I’ll pay $160K in interest over and above what I needed to buy the house. Debt is not good- I’ll never get back from my house what I put into it unless I can pay it off significantly faster than 30 years (which I will do). The stupid thing people do with debt is not paying it down. Even if you’re making the normal payments, at least you’re paying down the debt. Always pay on your debts. Or, even better, pay cash for everything and take on Zero debt.
Saving I’ve talked about saving money in nearly every blog post on this site and in every blog post I’ve written for other sites. Saving money is very, very important. Saving for ‘rainy days’ saving for your kids to go to college, saving so you don’t have to go into debt (or as much debt), saving is important. A lot of people don’t save- 76% of Americans are living paycheck to paycheck according to cnn.com’s 2013 article in Money. Save your money- Cash is King. So how much should you save? The easy answer is “some.” Save some money. Start small, can you afford to put $1 a day into a savings account? Do that. You’ll save $365 a year. Can you afford to save $3? What about $5? If you can save $5 a day, you’ll end the year with $1800 in the savings account! Save some money and join me in the 24% of Americans that do not live paycheck to paycheck.
Spending to Save This one drives me crazy. My wife gets home from Kohl’s/Macy’s/Nordstrom/wherever very proud of herself. “I saved $75 today!” I don’t know why she keeps saying this to me, we’ve been married for over 7 years and every time I say the same thing, “You did? Hand it to me.” You see, she spent $100 and Kohl’s and got some Kohl’s cash, then she found some stuff on clearance at Macy’s, and hit a sale rack at Nordstrom. I could probably go through her closet right now and find 5 things that she “Saved Big Money” on 3 years ago that still have the price tag on it. There’s a difference between something being On Sale, and something being a Good Deal. If you aren’t going to use it/wear it/eat it then don’t buy it just because it’s On Sale… A good rule of thumb to use is "Do I absolutely need this?" If the answer is yes, then ask this "Will I still need it in 6 months?" then track it- are you still using that item 6 months down the road? If not, you need to be more honest with yourself when you're shopping.
Buying More than You Can Afford Usually, this one goes hand-in-hand with #1. Debt. I know of a couple that purchased a new house. 18 months later they moved out... foreclosure. They bought a house that they couldn’t afford. They stretched those dollars pretty thin in the early months and made it work; never going out, eating Raman Noodles on their lawn-chair living room furniture. It got old for them… they couldn’t do it anymore. They went back to their normal social lives and bought decent furniture, then they stopped paying their mortgage. I talked to the guy about it a year or so later and he told me that they kept ending up around $200 short at the end of the month. $200 is a lot of money on your mortgage… but now they rent and they are happy- so is the bank. The trick here is budgeting. Know what you have, know what you’ll need and make sure that you have more than you’ll need- simple budget 101.
Maintenance We had our hot water tank replaced over the summer. It quit working. I talked to the plumber while he installed it ($950 later) and he said that due to the amount of junk in the water I should have been draining the tank every 6 months. I wasn’t maintaining my hot water tank and it cost me $950. Falling behind on maintenance of not just your home, but also your vehicles, will cost you a lot of money at some point. Change the oil in your car, replace the furnace filters, have the A/C cleaned, get a tune-up- these are small expenses that will end up saving you lots of money and headache down the road (pun intended).
Negotiating or lack thereof. Most things are negotiable. You should try to negotiate your cable bill right now. Use this : 7-flawless-negotiation-tips. You can negotiate your rent, you can negotiate your car insurance, you can negotiate your cell phone plan. All you have to do is call them up and talk to the companies that provide the services. By not negotiating, you are paying too much for services than you should be paying. I negotiated unnecessarily yesterday. I was at Tim Horton’s getting coffee and a donut- I get a large coffee- total price was $3.18. The 17 year old kid behind the register didn’t care. I pulled out $3 cash and said- is this ok? He said “yea, that’s cool.” It’s that easy… of course it didn’t help me at all, but it also didn’t hurt Tim Horton’s. I’m not saying you should try to take advantage of high school kids working fast food, what I’m saying is that you should negotiate everything… what do you have to lose?
Not Planning You need to get your family into a board room and do a full-blown budget meeting every quarter… no, don’t be dumb. But you do need to have a good idea of what your family earns and what your family spends. If you’re struggling, living paycheck to paycheck, then you probably need to get a little more granular.
Make a list of all of your normal expenses- mortgage, car loan, utilities, gasoline, groceries, etc.
Figure out how much money you bring home in an average month
Make sure the total from “a” is smaller than the total from “b”. If “a” is bigger than you’ve got 2 options, spend less money or make more money… now you’re budget is done
Communicating Many people don’t talk about money. If you’re married or cohabitating then you are accountable to your partner financially. You need to be able to make your payments on time. But you need to talk about it. My wife and I never really talked about money for years. I made a little more than her and I paid more bills than her. But that’s really all we knew. I didn’t know how much money she wanted to save. I didn’t know how much money she wanted to donate to the church. I didn’t know if she wanted to save for our children’s college fund. I didn’t know if she wanted to save money for a trip to the Bahamas. Then it happened… I lost my job. So we had to talk about money. We budgeted every expense, we budgeted our income, and we talked about it. I never felt closer to her than when we talked about our money. We didn’t fight about anything, we worked together to solve the problem… if it weren’t for me being out of work I would have said that it was a fun experience. Luckily, I got another job before my severance ran out so we didn’t have any issues whatsoever. But it was a really cool experience. Now, if you’re living with a buddy and renting an apartment, I’m guessing you won’t have a heart-to-heart about money. But it’s still important for you to talk to your roommates about issues you have- especially if you’re going to be short on your portion of the rent. It will work out better if you tell them before the day it’s due as well. It will also help them make you accountable… not a lot of fun, but better than getting booted from your bachelor pad.
Investing “I don’t understand the stock market, so I’m not going to invest.” You’re dumb. Investing is good. Invest in a 401k, especially if your employer matches. No exceptions. Do it- it’s free money. Invest in an IRA. Put money aside for retirement when your earning ability is lessened. Here are my rules to investing: 1. No one knows what they’re doing. No one really knows what’s going to happen to the stock market. Take a lot of advice, read a lot of books, and make educated decisions based on what you learn. But don’t put your entire investment into 1 place, and don’t listen to just 1 analyst/advisor. Learn these 4 words: Mutual Funds, Index Funds. Study those types of investments and then put your money there- it’s diverse and it has been known to make money.
Education A lot of people refuse to take the time to learn about money. How it works, how to use it, how to spend it, how to invest it, how to save it. Educate yourself on money. Read this blog. Read the Money section on CNN. Read Forbes. Read… read… read. Learn how to budget your money, learn some negotiation skills, learn a new skill and turn it into a way to make more money. Educate yourself… stop being dumb.
Not Enjoying It A lot of this post has been about saving, investing, budgeting… all the crappy, grown-up stuff we need to do with our money. But one of the dumbest things we do with money is forget to enjoy it. I’m very guilty of this. I’d take my extra $100 at the end of the month and pay down a car debt or put it in the savings account. My wife would go to the casino and put it on the Roulette table… she’s a lot more fun than I am. I need to be more like her (but she could stand to be a little more like me too…).
What about you? What are some of the dumb things you’ve done with money? Hit me up on twitter @jeffleonard12 or email at email@example.com Happy Saving!