Milk Your Money

Got Money? Milk the most from it…

Five Common Money Mistakes to Avoid

Anyone reading this article is probably already ahead of the financial game.  Just by showing an interest and initiative tells us that you put more thought into your financial decisions compared to your peers.  However, are you making money mistakes without realizing it?  We are willing to be that many of you are guilty of one of the five common mistakes below.  It’s ok, so are we, but it’s important we learn to avoid these mistakes and milk the most from our money. 

 

1) Anticipate a Large Tax Refund Every Year
Maybe you are one that doesn’t understand the terror that comes with tax season every April, because to you, this time represents a large windfall of cash.  As tempting as this may sound, its not the best way for you to be saving.  In essence, tax refunds represent an overpayment from you to the government, or an interest free loan (that’s nice of you, however, they would never return the favor). 

You are better off having less money taken out of your paychecks bi-weekly and getting your refund dollars as close to $0 as possible.  You can do better things with your money than have it sit interest free for a year.  At the very least, if normally you would receive a $3,000 refund, consider avoiding this by taking more out of your paychecks and putting this amount in a money market fund (earning around 4% yearly), and accrue an additional $120.  I say at the very least, because if this money is invested throughout the year, your return would hopefully increase.  Also, let’s face it, it’s hard not to blow a $3,000 check given in a lump sum, but it is easy to save incrementally. 

2) Constantly Purchasing Small Items that Add Up to Big Expenses
This may sound strange to many, but it is rare that my wife and I have a transaction during the workweek.  Try to avoid daily expenses, although tempting, they add up to unaffordable habits.  Here is a quick list of items people tend to buy regularly, that they could do without or find more financial savvy ways to purchase:
1) Coffee/MochaLachaFrachaLala (make at home)
2) Breakfast and lunch on the go (make at home)
3) Magazines, books, and newspapers (subscribe)  
4) DVD’s (Netflix and Blockbuster – are you getting your $15/month worth?)
5) Snacks (It’s 3:00pm and your hungry at work, bring something from home and avoid visiting the deli and vending machines.) 

3) Not Creating and Living by a Realistic Budget
There is a reason your employer creates a budget ever year – they are in business to make money and you should be too.  Creating a budget takes a little time and a few months of tweaking in order to accurately reflect your expenses, but it’s absolutely essential that one is created.  Trust me, you cannot keep track of your expenses in your head, and you need to see your monthly purchases laid out in front of you to realize where your money is going and where it should be going.  Take the time today and create a budget and give your life some financial structure. 

4) Not Participating in an Employer Match Retirement Program
If I guaranteed you 100% on your investments, would you take it?  If I said, give me a dollar and I will give you two, would you do it?  Of course you would!  It’s important to think of your employer match program in this way.  By simply agreeing to save a dollar, your employee is agreeing to guarantee a 100% return.  Trust me; you will never have a better deal…ever. 

5) Taking out Home Equity Loans for the Wrong Reasons
Although home equity loans are becoming less relevant because of the declining housing market and tightening lending standards, home equity loans are still appealing to many.  Unlike what your lender will tell you, these loans are not always a good idea. 

Here is an example; it is common for people to take out a home equity loan on their house to pay off credit card debt.  At the surface this looks like a good idea because the rate you will be paying on your credit cards is sure to be higher the home equity loan.  However, consider the following four stipulations: 1) you are turning your credit card debt likely into a repayment period of 15 years (give or take, depending on the term of the loan); 2) If you default on your home equity loan (which is now bad purchasing decisions with a credit card), your lender can take your house; 3) You are taking away your assets by borrowing against them; and 4) Depending on your credit and debt owed to credit cards, you are usually better off signing up for another credit card with a year of no interest and transferring the balance and start knocking down your debt, interest free. $   

Related articles you might be interested in:

Monthly Round Up for March

How Do You Handle Large Amounts of Money?

Where do you Purchase your Contact Lenses?

A Fine Example of Consumption

Invest in Your Companies Stock Carefully

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