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10 Money Mistakes

* Any averages mentioned below were researched but not sourced (I'm lazy!)

1. Taking on too much debt.

Did you know the average American pays over $280k in interest over their lifetime? When you add up all that interest on mortgages, cars, credit cards, or anything else that's financeable, it's a ton of money. If you're thinking $280k is not that much money, then think about that money invested over 30 years at a market return of 8% - the future value of that money is now $2.8 million.

2. Not using a credit card.

Credit card rewards have become too great to ignore. For instance, I have a Chase Amazon card that gives me $5 dollars back for every $100 I spend on Amazon. That's 5% and Amazon basically sells everything at amazing prices. That same card also gives me 1 to 2% back for everyday purchases not on Amazon as well. The average person, using the average credit card makes $300 back per year in rewards. Let's say you select an above average credit card, we could say that's $500/year in savings, especially if your household makes over $75k a year. $500 a year times 57 years (avg life span - 20 yrs) is $28,500. I won't keep calculating future value for each section but if that $28k is invested, it's much more of course.

3. Not paying off your credit card each month.

If point 2 surprises you, it's likely because you've heard your parents and grandparents, and others you trust, advise against credit cards. I respect this decision ultimately, as it can be a helpful warning for those who lack the discipline needed to manage a credit card. These advisors in your life have likely fallen prey in the past to not paying off their credit card each month, thereby incurring huge interest fees (20%+ often), effectively financing their day-to-day transactions which is an awful situation. However, many credit cards now let you automatically pay your account balance off each month from your checking account, ensuring you will never be late on a single payment, while also paying at the latest date possible. Think of your credit card as real cash from your bank (bc it is!) and that you get a free 30 days to pay it back, but not as a loan, and you should be fine. The moment you start missing your monthly payments, you're making a huge mistake as the 1-2% cash back is not worth the 20%+ fees, that's an additional 18% you are paying for all of your ongoing life transactions. Think about that, if you buy something for $100 and do not pay off your monthly credit card, that actually costed you $118. Do not fall into this trap!

4. Taking out a 30-year mortgage instead of a 15-year.

This point is mind-boggling.

So for a $400k house, with 20% down, so a $320k loan, at 5% interest rate, you are going to pay $298k in interest. Your taxes at only $5k per year (higher up North, lower down South) would be $150k over mortgage loan term, and will continue indefinitely.

Now...take that same 30 year mortgage scenario and make it a 15 year, what do you think your interest would be? Your total interest paid is only $135k, that's $163k less interest.

You may be thinking the 15 year would cost significantly more per month, but actually the mortgage on the 30 year was ~$2,200/month while the 15-year was only $2,800/month.

5. Hiring a Financial Advisor (esp one you know).

Financial Advisors are like child abusers in my opinion. It's always that uncle or friend who seemed so nice, but was actually a wolf in sheep's clothing. They use their relationship or familiarity with you to manipulate you. If you feel like the analogy is harsh, I would agree but I'm trying to make a point here. You see, as you put money away into retirement accounts, it grows because the economy and markets as a whole over time will blossom and continue increasing. So your account grows, but not because of the financial advisor, it grows in spite of the advisor. What bugs me is that just like a tick that continues to get fat by sucking blood from their victim while riding along, this is actually what financial "advisors" do. They take a % (anywhere from .25-1%) every year out of your total account balance and what's worse is they never tell you, in fact I have found that they will work hard to conceal it in many cases.

Let me tell you a little story....

Back in 1975 a brilliant investor by the name of John Bogle (founder of Vanguard Funds) realized that actively managed funds (aka: Financial "Advisors") were flawed because they rarely beat the performance of the S&P 500 (top 500 largest US companies) and yet were charging exorbitant fees. His theory was that he could create an automated index fund for the S&P 500 (only buying stocks from those 500 companies) which would not require any financial advisors (thereby lowering the cost), and would mimic the S&P 500's performance while beating 98% of the expensive Financial Advisors out there. You see, John Bogle was running a company full a financial advisors, but he was actually a good guy, he realized that eventually someone would create this index fund idea anyway so he decided to focus solely on this strategy. The rest is history as nearly 25% of all investors (the smart ones) invest via index funds saving literally hundreds of thousands of dollars in "advisor" fees. Think about this, if an advisor makes 1% on a growing $250k investment balance from one client over 30 years, that's $75k he makes not counting the growth. Let's assume that account grows to $750k over 30 years, which is highly likely actually, the total to advisor fees would top $150k over 30 years, that's hard-earned money that pays for college, and mortgages (15-year!), toys for grand-babies, and so much more. I despise Financial "Advisors" because they do NOT make you money, the stock market does, they TAKE your money and 98% of the time earn you less return than the index. It's a crime, an absolute crime...and then you invite him to your house and other outings to try and impress him because he's your money guy. are his money guy!

For the record, I'm not the only one who feels this way...actively managed funds are losing an average of 10-20% clients per year as people become more educated on the growing cost of fees from Financial "Advisors".

6. Not investing in an S&P Index Fund.

See point 5.

7. Taking a lower salaried job.

The income you make is your source of livelihood and the basket from which all expenses and investments are funded. Less income usually means greater risk of debt and less opportunity for investment into things like index funds that set you up for retirement. I believe, almost unequivocally, that an individual should never leave a job for a lower salaried position, no matter the situation. There are many reasons for this point but I'll just mention two:

A. It's rare that your next job will be less work, usually people take on more responsibility as they develop in their career. The excitement of the new job will soon fade, and the realization that you're making less money for more work can cause regret.

B. Your lower salary is your new baseline. This means all new future job negotiations will be based on this new salary. I understand there are admirable, and even altruistic reasons, for taking less money, and to each his own, but being self-sustainable and caring for your loved ones should be our highest priority.

8. Not investing in a company sponsored 401k.

All company sponsored 401k employee contributions are pre-tax which lowers your taxable income thereby lowering your total tax bill. If your company matches your contributions, then it's absolutely imperative to invest in your 401k as the match is effectively "free money" from your employer.

9. Choosing people you know as your bankers, advisors, and insurance agents.

I just think people rarely get the best deal when they know someone because they are typically uncomfortable negotiating with that person, or there is blind trust - they avoid soliciting bids for their business because they assume the person they know will give them the best deal since they are friends or acquaintances. In reality, that person may actually give you a worse rate because they know you are unlikely to make them compete for your business. Here is a question to consider: Is knowing someone an appropriate justification for them handling your financial affairs? Hardly!

10. Being a taker.

Watch our for these people! If you're the taker, maybe you should reconsider your ways.

Tell Tale Signs of Takers:

1. They talk often about things they need or want but can't afford, constantly dropping the not-so-subtle hints.

2. They plan to do things with you (which they can't afford) only to tell you they have no money last minute, often at the venue itself!

3. They talk about your generosity or success openly, almost making you feel guilty for not paying for them.

4. They offer to buy something of yours at discount, when you never even listed it for sale. They put you in the uncomfortable position of bartering with friends, hoping you will just give it to them. This strategy has proven very effective on me, it's my kryptonite - and yes, I did just refer to myself as Superman.

5. They want to control details of places or events you've invited them to for free.

6. If you are bothered or offended by any of these points.

I think takers earn the reputation fairly fast and generous people eventually grow weary of it. I think with this reputation comes less opportunity from others, making it a significant financial mistake. Ultimately, both God and people reward giving, and I believe you ultimately get what you give. Meaning, there is a positive correlation between the effort one puts in and the benefits one receives.




Washington, DC, USA