Going To College
This is a shocker for most people! Guess what, tuition is expensive! In addition you'll have to waste 4 years of your life and pay back a huge student loan! By the time your done with college you'll have a college degree, have wasted your young 20's, have student loans, but no job yet. Did I mention that you'll have to buy your own supplies? This includes, expensive textbooks. While you're in college, you'll also have to share a cheap, disgusting dorm room with a roommate who could steal your things. This outdated dorm room will cost you even more money in addition to tuition. Colleges often over price these dorm rooms knowing most people will opt in to renting a dorm room with the easy accessibility of being on campus instead of getting an apartment elsewhere and commuting to college.
Here's another bad thing. Just because you have a college degree doesn't mean you're guaranteed a job. Many college graduates don't have a job in the field they studied for. This is common, especially in our current economy with a 10% unemployment rate.
Now instead, you could take the "get a job out of high school" route. While your friends are in college racking up debt and studying, you will be out enjoying life, partying, traveling, getting job promotions, job experience, and regular raises. With all the raises you'll be getting, you'll be making almost as much as your friends by the time they've graduated college. Also, you'll have earned money from the last 4 years that your friends won't have because they've spent their minimum wage income on cup of ramen soups and textbooks.
Many college students are poor, stressed, and have part-time jobs that don't pay well. In addition, they have unhealthy habits such as eating junk food and staying up all night studying and doing work. Who wants to waste their youth on studying when they can make money and enjoy their young life at the same time by simply taking the "get a job out of high school" route.
Now before you say there aren't any good paying jobs for high school graduates, let me prove you wrong. There are many including labor intensive ones such as electricians, carpenters, construction workers, factory workers, etc. But what if you don't want a labor intensive job? No problem. There are many that only need on the job training or a license. Did you know that only two-thirds of jobs only require on the job training? These include real estate agents, salesmen, insurance agents, chefs, many office jobs, policemen, firemen, driving jobs, and tourism jobs. Salesmen and real estate agents usually make great commission with only a high school degree.
Not everyone is able to stay independent for the rest of their life. If you can then congratulations! Most people will get lonely and seek that special someone.
I'm a male so this is kind of bias toward a male's point of view but getting married will have unexpected costs. First of all, you will spend as much as a new car costs in one night! You'll need expensive meals for everyone, have to rent a place for the wedding, hire a limo, and spend money on other minor costs. Then, your spouse will want some nice expensive rings for each of you. Each ring will cost a few thousand dollars. You could have just put a down payment toward a car or house! Now that your diamond rings have lost value in the jewelery market, your spouse will want to go on a honeymoon! A honeymoon will cost a few more thousand dollars! Congratulations, you've just spent a year's salary getting married!
Throughout your life, your spouse will want gifts on Valentine's Day, Christmas, and their birthdays. More expenses, great! Even if your spouse is able to work, they will probably keep begging you for your money and gifts. However, your spouse will likely become a stay at home parent sometime during their life which means you'll be providing income for your spouse and kids. (if you have any)
Here's the unfair part of a marriage. If you decide to get divorced (51% of marriages end up in divorces), your spouse automatically gets half of all assets (cars, houses, money, furniture, etc.) even if they're all yours and you are the primary income earner for the household. That's why some people marry for money. Don't fall into this trap!
Kids are the worst financial decision you can make. Kids are great for someone to spend time with, a way to pass on the family name, business (if you own one), and traditions. Other than that, they will cost you money. Did you know that a kid costs a quarter million dollars to raise from 0-18. You could have bought a new house instead of having a kid. This is before you fund your child's college tuition.
How do these costs add up? As a baby, kids will need lots of care, food, diapers, toys, strollers, a crib, bottles, blankets, healthcare, etc. As they get older, they'll still need food as well as healthcare, toys, transportation, schooling, housing, their own room, a bed, entertainment, clothing, etc. To make things worse, the government only gives you a tax refund of $1,000 per child per year. This is not nearly enough to pay for the cost of a child. With all the costs, think twice before having lots of kids in this economy.
Renting For Too Long
Renting for too long will become a financial mistake. This might confuse some people but let's think about it. When you rent you aren't getting anywhere. You aren't building any equity, which basically means you don't have any assets and aren't gaining net worth from the rising housing prices. All you are doing is making your landlord rich. You might be having fun spending your discretionary income on other things such as going on vacations, buying dream cars, and going on spending sprees but wouldn't you want a place of your own with privacy?
Instead of spending your discretionary income, you might want to consider putting some money away in savings to buy a house. Overall, a house will be nearly free if you own it because you won't have to pay rent and you'll be able to sell it back for what you paid for or even more. All you have to do is pay your taxes, utility bills, and keep your house up to date without letting it fall apart and you'll basically get paid to live in it.
One of the stupidest financial mistakes I see is when some one pays half their salary per year in rent instead of buying a house and having a mortgage that costs less than their apartment rent. Don't be like one of those people. Get a house as soon as you can because paying half of your salary for rent won't help you get anywhere.
Getting A Large Mortgage
Getting a mortgage is bad because you will end up paying double to triple of the original principle back after paying for loan interest. If possible, try to pay for your house in cash or at least 50% down in cash. This will save you tens of thousands of dollars in interest. The chances of someone carrying enough cash for a house are slim to none so instead you could also pay your mortgage back quickly by making extra payments when you have extra cash saved up.
Although many times you only need 10-20% of a down payment and sometimes no down payment, putting this little down will lead to more loan interest. So many young people are so eager to buy their first house that they try to buy it as quickly as they can. Sometimes these people can't even pay their mortgage payment back and the bank ends up foreclosing their homes.
Overall you don't want to make your landlord rich by renting for too long but you don't want to pay too much in loan interest. Try renting one of the cheapest apartments you can for a few years then put all the extra money you've saved into a huge down payment on a house. Then pay your house off quickly. Once your house is paid off you can enjoy all the extra savings on anything you want.
Buying The Wrong House In The Wrong Neighborhood
Buying a house is likely to be the most expensive purchase you'll ever make in your entire life. You'll want to pick the perfect size house in the right location before dropping the money on a house. Buying a house in a poor ghetto area of town will be hard to sell. The land value will be worth a lot less also. Who wants to live in the dirty part of town with high crime rates? On the opposite side, buying an oceanfront home or a house in a convenient location such as the middle of a big city will cost you a lot more and might not be worth the cost per square foot or cost per acre. Many people will waste the extra money because they want the perfect location. Remember the three things that will affect the price of a house: Location, Location, Location!
In addition to location, sometimes people buy a house that is too big for them. Do you really need a 5 bedroom house for yourself? Those extra square feet will cost extra in heating bills and will cost you more in property taxes. A bigger house will need more maintenance especially when you have a large yard. This means more work or more money to hire people.
Not Repairing Your House
Have you ever noticed how some people just don't repair their houses. Isn't that unappealing? As your house ages things need to get repaired or replaced. Unfortunately, not everyone fixes their house which causes it to depreciate in value. If your house isn't visually appealing than people might not be interested in buying it. You'll end up lowering the price to get it sold. When you repair your house, your house value will increase more than what you've put into your house. Things such as the roof, walls, bricks, chimneys, doors, windows, driveway, pool etc. need to be repaired or replaced as they age and become outdated. The same applies for indoor items. Old appliances should be replaced with new ones as well as the floors and walls. By taking the above advice your house should continue to appreciate in value. Sometimes all you'll need is a quick paint job to make your house look better and more valuable.
Buying A Brand New Car
This is a stupid mistake to make if you don't earn a lot of money. If there's one financial thing I find strange, it's when I see someone with a new car that's worth more than their run down house.
Why is this bad? When you buy a car, it will depreciate 20% of its original value once driven off the lot. This means, if you buy a $20,000 car, the car will only be worth $16,000 once you drive it off the lot. You just instantly lost $4,000!
What you can do is buy a car that's semi used with low mileage (ie: around 30,000-100,000 miles). This will cost you less and be almost as new as a brand new car with 0 miles. If you are making a great income and are debt free, then do whatever you'd like. However, this is what you should do if you have other bills to pay such as a mortgage and credit card.
Leasing A Car
Leasing a car is just as bad as buying brand new car that you can barely afford. There are many hidden fees and disadvantages to leasing a car. First all the car has mileage limits. Since the average American drives 12,000 miles per year, this is usually the limit. This means if you drive over your mileage terms you are charged $0.25-0.50 per mile driven. So for example, if you drive an extra 1,000 miles over your limit you are charged up to an extra $500! That's a hidden fee! This is discouraging to people who lease cars because they have to constantly watch their mileage and if they get close to their limits they'll stop driving the car while still paying monthly payments. Who wants to pay for a car that can't be driven without going over mileage limits?
Another way dealers get you is through other hidden fees. Little dents and scratches, as well as rust will cost you more hidden fees. If you have little children who could put dents into your car then leasing is not ideal for you. If you live in a harsh climate where your car could get rusted or scratched easily (such as a dirt road) then leasing is not ideal for you also.
Now let's talk about money. Dealers will charge you a down payment of around a few thousand dollars. Then you'll have to pay a certain payment each month as well as any extra fees. Here's the worst part. After paying nearly $10,000-15,000 over a 3 year period, you'll have to return the car and start the process over again. you'll have to either lease another car or find the money for another new/used car.
In the end, leasing is only good for a last resort when you need a car that will last,have no other options available, and don't drive much.
Not Getting Car Insurance
You decided not to get car insurance because you want to save money. Crash! You've had a car accident and now you'll pay for it. Without car insurance you won't get money for totaling you car. Not only that, but you'll have to pay when the other person sues you for crashing into them. This could cost you a couple hundred thousand dollars if you end up getting sued. To avoid this, you should at least get the state minimum plan but a better plan is recommended.
Not Getting Health Insurance
You decided to not get health insurance because it's expensive, you're young, healthy, never go to the doctor, and never get sick or hurt. Ouch, you've got hurt and now the hospital is sending you a bill for $100,000! This happens a lot to people. About 50 million Americans don't have health insurance because they can't afford it, think they're young and healthy, or think it's a waste of money and nothing will happen. Don't be one of these people. While it is expensive, who wants to get an unexpected hospital bill after getting hurt then never be able to pursue their dreams again? Instead, at the very least, get the cheapest basic plan with high deductible and premiums that will reduce your hospital bills incase something major does happen. As you get older, your health starts to get worse so older people should get a better plan to cover more medical expenses.
Not Getting Homeowner's Insurance
You own a house and decided not to get home owner's insurance because the weather is good in your area and there's low crime. Bang! A tree falls on your house and damages the roof. Then a thief comes into your house and steals your possessions. Now what? You aren't covered, so you pay a lot of money and don't get your stolen items back. Home owner's insurance is relatively cheap so there is no reason to avoid getting it. Depending on where you live, you might need to add hurricane coverage, tornado coverage, earthquake coverage, or flood insurance. If you live in the south then get hurricane insurance. If you live in the middle of the country then get tornado coverage. If you live in a common place that has earthquakes such as California then get earthquake coverage. Flood insurance is good for areas that are barely above sea level such as New Orléans, Louisiana. Areas near the ocean, rivers, or lakes are places where flood coverage is a must to add to your home owner's insurance policy.
Not Saving For Retirement (Early Enough)
Many people either think social security will be enough to live on when they're retired, think that they have better things to spend their money on, or would rather start saving for retirement later in life.
Sorry to tell you this, but social security doesn't pay nearly enough and it might not even exist in the future. Since a large percentage of the population are baby boomers and baby boomers are now retiring and collecting benefits, they are the ones sucking up the social security fund. Even if social security will exist in the future, the age before people are eligible for benefits will increase to prehaps 70 or more because people are living longer these days.
The later you wait to save for retirement, the less money you'll earn in interest. With the annual inflation rate, you'll need to save for the rising costs in the future. Getting a 401K, 403B, Roth IRA, or other type of annuity will earn you good interest for the years to come. All you need to do is deposit a few thousand dollars per year. Many employers will offer this, sometimes match the benefits, and take it out of your check right away so that you don't spend the money elsewhere. It's never too early to start saving for retirement.
Investing Too Much or Too Little
Investing could be bad because you could lose some money. However, if you never invest then you'll never have a shot at getting rich.
NYou don't have to invest in the stock market to get rich. In fact, investing in the stock market is a bad idea. No one knows if the economy will crash tomorrow. Instead why not invest in real estate or rental property. You could also start a business. If you do decide to rent out houses to people, you could become a successful landlord.
If you rent houses to tourists you could earn even more money. Oceanfront beach homes typically have at least 5 bedrooms and go for upwards of $5,000-7,000 per week. Tourists will pay this. Even after marketing the home, advertising, cleaning expenses, buying supplies, taxes, and home upkeep you'll still be making a few grand per week on a home. This is an easy way to retire early.
That being said, don't invest your life savings. No risk, no reward, but too much risk and you'll go broke.
One other thing to add. Savings accounts aren't considered an investment. With the current state of the economy, banks pay you around 0.1%. The annual inflation rate is around 2% (not including energy, gas, and food prices). This means your money is still losing money each year by putting your money in a bank. With bank and ATM fees, you'll most likely lose money by putting your money in the bank. The same goes with certificates of deposits (CD's) which only pay 1% annual interest. Invest elsewhere!
Not Establishing An Emergency Fund
Many Americans live paycheck to paycheck and few actually plan for emergency expenses. What if you lose your job tomorrow and need money until you find your next job? What if you go into the hospital and can't work for a few months without disability pay and have a hospital bill to pay? What if your car breaks and you need to get it repaired? These are all examples of disasters that could happen tomorrow. Luckily, you can prepare for this today. Establish an emergency fund by putting away a certain amount of money each week such as $100 from every paycheck. Repeat this process until you reach your goal. The recommended amount of money to save is 3-6 months of living expenses. This is usually at least $10,000 for most people.
Getting A Credit Card
Wait a minute! Put that credit card application down! Credit cards will ruin your life if not managed right. In general, you shouldn't have credit cards. If you have one then only use it for emergencies such as when you get stuck somewhere and need to get home or an unexpected expense.
Don't be fooled when a store tell you "open a credit card today and save 10-15% on your purchase." The truth is you'll end up paying more than the 15% in credit card interest. This is why stores give you money off your purchase.
Credit card companies will also get you hooked by offering a great deal such as 12% APR when you open an account. With low rates what do you have to lose? Many people will rack up debt and take advantage of this. Within a year, a credit card company will up the interest rate to 25% or more. If you have bad credit than you could end up paying up to 39% APR. This means you'll pay back a few hundred dollars in interest on a $1,000 credit card purchase. When companies do this, people realize they can't afford to pay off their debt and the credit card companies get rich off you while your credit score drops. Then people send late payments and get late fees which are typically $39 or more. What's $39? Well, it adds up. Those late payments could have gone toward paying more debt off. By staying away from credit cards, you will avoid all of this.
Paying The Minimum Due
This is another credit card mistake. If you can, pay your credit card in full. Many people will fall for the minimum due trap. You might owe $1,000 and only have to pay the minimum due of $30-50. That sounds like a small bill so why not pay the minimum due? The truth is, paying the minimum due will cost you double to triple in credit card interest of what you've charged. In addition, it will take you years to pay off your debt.
Paying Your Bills Late
There are A number of people who pay their bills late. Whether it's a credit card bill, mortgage, or simple utility bill these will all affect your credit score. Many bills and almost all credit cards have late fees. Paying your bills late often, will add up and greatly affect your credit score. This can ruin your life financially because it will be harder to get a mortgage, loan, or credit card approved if you pay your bills late since companies and banks look at how well they can trust you to pay back the loan based on past experiences.
Not Paying Cash For Large Purchases
This is a dumb thing that many people do. Many people will feel that they need a vacation or an expensive item. Instead of paying cash they take out a loan or use a credit card to buy a vacation or special item. Once the purchase is made or vacation is over with, these people are still stuck with the bill. These type of people usually go in debt and have a hard time paying it off. Unless you can pay for extra, unnecessary items in cash, you should hold off until you have the money for these items. You'll feel better knowing that you can enjoy your vacation or expensive purchase without worrying about the bill afterwards.
Underestimating Miscellaneous Costs
You know how little miscellaneous items that you buy daily, cost extra money. You've got your $2 newspaper, $5 cup of coffee, $10 lunch, $15 movie theater ticket, etc. These items add up. Many people don't factor these items in and carelessly spend money everyday on little things. If you buy a $5 cup of coffee everyday for a year this will cost you almost $2,000! Cutting out these little habits will save you a lot of money in the long run. Just because something only costs a few dollars doesn't mean it won't affect you financially over time.
By eating at home and skipping that cup of coffee, you'll save a lot of money. Going out to a restaurant or getting take out is okay in moderation but if you do it often it will add up. Eating at home is healthier for you and your wallet!
Not Using Coupons, Discounts, And Negotiation Skills
Many people don't use coupons and never take advantage of discounts. This is bad because clipping some coupons or buying products on sale can save you money. This is only ideal if you need the product and were going to buy and use the product. Some people do the exact opposite. They'll buy things that they don't really need just to save the money. This is worst than not taking advantage of coupons or discounts. Why waste money on products that you'll never use?
Negotiation skills are something many people lack or never use. Did you know that you can sometimes negotiate the price of an apartment down? Most people don't know this. Negotiating comes in good use when buying a used car or items at a yard sale for example. Negotiating shouldn't be used in a retail setting unless you are buying a negotiable item such as a car or house. You can't go to the grocery store and negotiate an item down.
The Envelope System
This is a recipe for disaster. Especially in the age of debit cards, electronic funds transfer, and credit cards, anyone can buy an item with a simple swipe without seeing how much of your budget is dedicated to making that purchase.
Budgeting is easy though. All you need to do is add up all of your sources of net-income in a month. Net-income is all the money earned after deducting taxes. This includes paychecks and all other sources of income. Then you need to add up all of your monthly expenses. This includes car payments, mortgages, loan payments, utilities, groceries, gas, insurance, and any other expenses. If your income or expenses vary then take an average from the past year or so. Now subtract your total expenses from your total income. If you get a negative number (no money left) than you're in trouble and need to change your budget and spending habits to fit your lifestyle. Otherwise the number left is the amount of money you have to do what ever you want with. This is your discretionary income.
One other easy tip that will help you visually see your budget is to try the envelope system. First you need to start cashing your paychecks for cash. Then you need to make an envelope for each expense. Then you need to put some of your cash in each envelope to set a budget for each expense for the month. No matter what you do, don't let yourself spend more than what's in the envelope. If the money is gone then oh well; You'll have to wait until next month unless it's a critical bill that will become overdue.
Have you ever gone to a store and told yourself you just had to have that item without thinking about it? This is impulsive shopping and it is costly. Everyone has done this at least once in their life. Instead of doing this, you need to research before buying expensive items. When you are going to buy an item think of things such as the following.
- Do I "need" this item or do I just "want" it?
- Will this item really benefit me?
- Is this the size, color, type, brand etc. of the item that I want?
- Do I need this item today or can I wait?
- Is this item of good quality/will it work or am I about to buy a useless piece of junk that will break right after the warrenty expires?
- Can I afford this item or do I have bills to pay?
Is there a way I can save money on this item? (Buying a generic brand, buying less features, using coupons, waiting for a sale, etc.)
One tip to follow is waiting 24 hours if the purchase is over $100; waiting a week if it's over $500; and waiting a month if you intend to buy something over $1,000. This is very effective because you will go home and think about it and most likely your desire for a specific item will wear off over time.
Getting A Pet
Awww, your furry friend is cute! But he/she will cost you thousands of dollars over its life! Many people love pets and get one for someone to interact with and spend time with. Unfortunately, pet have lots of costs. First you have to buy the pet. This could be $1 for a fish or $200+ for a dog or cat. Then you need little expenses such as pet toys, a bed, leashes, a cage, and pet food. These will add up over time. The average pet costs $1 per day to feed. That doesn't sound bad but here comes the scary part. The vet bill! Pets usually have to go to the vets twice per year. The average pet visit could cost up less than $200 all the way up to $500 or more. This could be another $1,000 per year! Lets say your pet lives for 15 years. This will be $10,000-15,000 in vet bills over your pets life! Now the costs are adding up. Pets are cute and fun to play with but think twice before buying one. There's nothing worse than an abused pet because the owner couldn't afford to take care of them.
Never Earning Passive income (or Trying Infobarrel!)
Sorry but I had to put this one in here for all you Infobarrel users out there. With Infobarrel and other passive income sources online or offline, you work once and reap the benefits later. With Infobarrel, you write an article once on any topic you choose. Then you'll get paid every month for the rest of your life from Google Adsense clicks, until the internet goes boom, or infobarrel shuts down. Both are unlikely though so Infobarrel is a great way to make extra cash and possibly a living writing articles while your friends are only getting paid when they are working at their jobs. With passive income you get paid while you sleep. Unfortunately, many people never try this and many don't know about passive income.