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Making the correct money decisions is a hard thing to do in 2022. Financial experts recommend avoiding making these financial decisions.
Buying a Sports Car
Don't buy that old European sports car you've dreamed of since you were a kid. Even though you can finally afford it, trust me, you can't afford the repairs.
Every couple of years, I get the urge again to buy an old Porsche, Mercedes, or Jaguar, and I'm overjoyed when I drive it for the first time. Then my love for it is steadily chipped away by $6,000 in suspension repairs, $1,000 for a replacement dome light, or 12 miles per premium gallon. Even if you avoid the $200/hour mechanics, replacement parts cost five times what you think.
That 401(K) Loan Will Cost You
If you think that you can pay off a 401(k) loan over time after leaving a job, think again. It depends on your employer, but you may have to pay it back immediately.
If you don’t have the money to pay it back, your 401(k) account balance will be reduced by the amount that you owe, and you may owe taxes and a 10% penalty on the amount.
Forgetting to Outsource
Our most valuable resource is time, but well-intentioned people often waste time doing things they don't like or aren't good at to save a few bucks. Small business owners can get bogged down with responding to emails or pouring over their taxes, eating up time they could develop new products or work with dream clients.
Parents might spend so much time cleaning up messes they get burned out and can't focus on work and miss out on a promotion. Ultimately, saving a few dollars by doing it all yourself can be much more costly in the long run.
Don't Loan Money to Family
We've all been there. A friend or family member needs money and asks you for a loan. You want to help, especially if it's someone you're close to. However, the time to decide how much you can float them is not in the middle of their crises.
Money brings out emotions that make it hard to make rational decisions, so it's best to know how much you're able to share ahead of time. A good rule to follow is never to loan money you can't afford not to get back because odds are, you won't. Instead, earmark a certain amount of money you're comfortable sharing, even if it never gets repaid.
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Avoid Retiring Without 1 Year of Savings
You will be extremely nervous when the market crashes without one year of cash set aside. With one-year cash reserves, you have enough to stop distributions from your investments and wait out the market storms.
This cash can be in a savings account or locked in a separate position within your IRA.
Money Sitting Idle Is Worthless
Your money should be invested in different asset classes depending on your goals and overall plan. Besides maintaining an emergency account, there is no reason to let your money sit idle. Stocks, bonds, real estate, or any cash-flowing investment are all good options.
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One should view their money as their employees. All your dollars should be put to work for you in the most efficient manner possible, allowing the magic of compound growth to work in your favor.
Don’t Avoid Money Conversations
Never legally tie your finances with someone else's — including getting married — unless you have first discussed money. Finances are the #1 relationship stressor. Don't risk becoming a statistic — start the money conversation as soon as possible!
Work to understand each other's money mindset, create a joint vision for financial prosperity, and build and implement a plan to get you there.
Be Mindful About “Upgrading” Your Life
Everyone at some point upgrades their lifestyle. This decision usually comes after a pay raise, yet these upgrades are not considered essential and should remain within your budget. You can avoid overspending by calculating it objectively.
Here are two examples: If you want business class travel, divide the cost of the round trip by the number of hours spent flying. If the cost per hour is more than your hourly salary, then it’s over budget. If you want nicer handbags, calculate how many hours you have to work to pay for the bag. Anything more than a day’s work is overspending.
Avoid the Wrong Partner
The one thing you should never do with your money is support a partner who refuses to pull their own weight. Choosing a partner is one of your most important financial decisions. A great partner enhances your life. A lousy partner will take advantage of you and leave you wondering why you can never get ahead financially.
A partner needs to bring something to the table. What they provide could be financial resources or varying types of labor, but it needs to be something. Don't waste your time and money on a partner who forces you to pay all the bills and take on all the domestic tasks because they can't be bothered to pitch in. Trust me, you can do better.
Avoid Buying One-Time Use Items
I've had to learn this money lesson the hard way, and it is one rule I continually use. The rule is not to purchase rentable items (equipment or tools) unless used enough to justify the purchase.
It is easy to think something will get continual use, but after using it for the first time, you gain more knowledge and realize you won't need it as much as you thought. Plus, additional savings exist on not requiring maintenance, storage, etc.
As a certified credit counselor and syndicated writer at MaxMyMoney, Max has coached over 250 Millennials to help take the stress out of money. When Max is not coaching, you'll find him reading financial books, indoor cycling, or visiting local pawn shops looking for swiss-made watches.