10 things that scream ‘I make terrible financial decisions’

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Financial mistakes: We all make them in life from time to time. But hopefully as we live and learn, we make fewer and fewer of them as the years go by!

Once burned, twice shy as they say.

If you’re looking to learn from the gaffes of others, here’s what not to do in your financial life…

RELATED: Political scam alert: Do not answer phone calls from these 10 area codes!

Don’t make these big money mistakes!

Recently, we noticed a discussion titled What screams “I make terrible financial decisions!”? on the social question and answer site Quora. A lot of it centered on buying a new car — especially if you’re not wealthy — and that’s certainly a biggie.

For years, money expert Clark Howard has talked about the extreme depreciation (i.e. the loss in value) new car owners experience the minute they drive off the dealer’s lot in their new wheels. AAA estimates that the depreciation costs on a new vehicle are $3,000 a year.

That’s why buying a gently used two- or three-year-old used car is a key part of Clark’s advice about car buying. Let somebody else’s wallet take the hit on depreciation, not yours!

But buying new cars is far from the only financial mistake that we commonly see. Here’s a list of a few others, in no particular order:

Not paying your credit card in full each month

Credit cards can be an important part of your financial life, but don’t make this key mistake…or what should be a good thing quickly turns into a nightmare.

“If you know that you’re the type of person who is going to use any credit you may get and not be able to pay back your debts….having credit is simply too dangerous and you should live on a cash basis,” Clark says in explaining his philosophy about credit card management.

We’ve got advice on helping you go cash-only in your life right here.

Having more than six credit cards

There’s not exactly a hard and fast magic number when it comes to how many credit cards you should have.

For example, many people who pay responsibly on their credit lines like to have multiple cards to maximize the rewards, i.e. use one card for travel rewards, another for cash-back rewards and so on.

However, people who have more than six credit cards historically tend to charge more and run a balance.

Just something to think about as you assess the state of the health of your wallet!

Becoming a “payment buyer” for cars

The average length of an auto loan in the U.S. is now nearly 70 months, according to the latest data.

Why so long? People are stretching out the loan longer and longer to get a lower payment that fits into their budget and lifestyle. It’s called being a “payment buyer” in the auto sales industry.

If you want hard and fast rules, try this one of for size: Clark says the longest auto loan you should ever take out is 42 months. If you can’t afford the payment on a 42-month loan, then you should buy a cheaper car.

There are multiple reasons why you want a term of 42 months or less. The first is obvious: You’ll pay more interest on a longer car note. Meanwhile, you can see the other reasons here.

Trading in a car you still owe money on

Picture this scenario: You have a car and you’re still paying off the loan. But you decide to trade it in and get a newer vehicle, taking out a new loan in the process.

Several months later, you are contacted by the lender on your last car about missed payments. What happened? It’s possible that the dealership never paid off your loan when you traded your car in…and you don’t have the vehicle anymore.

Unfortunately, you are still responsible for payments on the car that you no longer own. Your credit is dinged because of the missed payments and your new car may be repossessed if you can’t meet both loans.

That was a huge problem during the recession last decade. Car dealerships that took trade-ins were not intentionally trying to cheat customers. But when they hit hard times and went insolvent, they weren’t worrying about paying off your note.

Forewarned is for forearmed for the next time the economy slows down!

Jumping in and out of fad investments

Bitcoin is probably the biggest fad to come along in years. Freedom Checks is another one that comes to mind.

Let’s be perfectly clear about something right off the bat: This is not the kind of investing money expert Clark Howard recommends.

Instead, Clark is all about the slow approach to building wealth over time, using either target-date retirement funds or plain vanilla index funds with super-low costs.

That said, Clark understands some people like to speculate with their money. That’s why he recommends that if you do buy something like Bitcoin or another cryptocurrency, you only do it with 5% or less of the money in your portfolio. That way, you limit your losses on fad investments while getting some exposure to possible upside.

Not picking up your employer’s full company match on retirement savings

Who turns down free money? Unfortunately, about one in three of us!

Some 33% of retirement savers don’t save enough to get 100% of their employer’s match, according to Vanguard’s How America Saves 2018 study.

Of course, not every employer offers a match on retirement savings. But if your employer does and you’re not getting the full match, you could be leaving an average of $1,336 of potential money on the table each year, according to Financial Engines.

Buying as much house as the bank says you can buy

Here’s another hard and fast Clark Howard rule: When you qualify for a mortgage, the bank or lender will tell you what they think you can afford. But you should step back 10% and only get into a mortgage using 90% of what the bank thinks you’re good for.

It’s called Clark’s 90% mortgage rule and it’s designed to give you some financial breathing room for all the extra expenses that come along with becoming a homeowner.

“The expense of housing is like a rubber-band — stretch it too far and it will break,” the consumer champ notes. “Stay at 90% or lower and your wallet will smile.”

Getting into a bidding war over a home

Clark has long had a guideline for potential homebuyers that goes like this: Don’t fall in love with a house until after you buy it.

What you want is to avoid working yourself up into frenzy where you love a potential home you’re thinking about buying so much that you’ve just got to have it.

The thing about bidding wars is that you always lose in a sense — even if you win the bidding — because the price has been driven up so high in the process.

Another thing to be wary of is when you’re in a seller’s market and your real estate agent suggests you should write an “offer letter” to help you seal the deal and get the house of your dreams.

“When we hit the letter-writing time in real estate, it means that housing demand has way outstripped supply and you’re going to pay a precious price for the home,” Clark says.

Co-signing a loan for an adult child

Thinking about co-signing a loan for an adult child who needs a car, a student loan or a credit card? Think again.

The latest stats show about 40% of adults wind up making the loan payments themselves because the primary borrower (their adult child) is either unwilling or unable to do so. It’s just the sad truth of the matter.

And that’s just the tip of the iceberg when it comes to the dangers of co-signing a loan for an adult child. Read about the others here.

Not having a will

OK, so maybe the last item on this list doesn’t apply to everybody. But if you have dependent children and/or a lot of assets, you need to have a will.

If you don’t have a will and have children, the state would decide who raises your kids if something were to happen to you. And if you don’t have kids but you are married, the state would decide how your money is allocated if you die “intestate” — without a will in place.

Fortunately, there are a lot of free or cheap ways to get a will in place online in about 15 minutes. Here are some of your options.

Here are some Clark Howard ways to save:

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Theo Thimou About the author:
Theo has co-written several books with Clark Howard, including the New York Times #1 bestseller Living Large in Lean Times. As a single widowed parent of two young children, he strives to bring unique savings tips to men and women like him who must face life without their spouses. He can be reached at [email protected]
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