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Making Money Mistakes
by
Carl Hampton
07/01/2010
We all do stupid
things, we all have instances of life where
in hindsight we think, “What was I
thinking?!” Its natural, its normal, its
part of the beautiful human experience;
hopefully these mistakes didn’t lead to MC
Hammer pants and shiny red convertible
mid-life crisis, but in all seriousness
there are financial mistakes that are easily
made with good intentions that can be
detrimental to your money’s future.
Everyone wants to chase
their dream, whether it is becoming a rock
star or supermodel or just to follow the trend
with an investment. If you’ve heard it once,
you’ve heard it at least a hundred times,
“Past performance is not an indication of
future returns.” It is common to read or hear
a “good” tip in the investment game, later to
find out that it was the exact worst time
possible to invest. A good example of this is
the recent housing crash, look around—many
people thought it would be a good idea to jump
in and either buy or build a home, with the
idea that they would rent or flip that home.
Now, since that market has taken a sharp turn
south, people are being forced to foreclose on
their primary residence because they invested
and now cannot afford two mortgages.
Another common money
issue that can be easily avoided is the
thinking that “On Sale” is synonymous with a
good deal and a wise financial choice. Many
people, if making a big purchase, will think
that the better deal is the purchase that has
been marked down. In fact, if people see that
a product has been marked down to a lower
price they are more inclined to spend more.
For Example, if ‘Average Joe’ is shopping and
he has the intention of buying a $250 product,
Joe has done his home- work he has researched
the brand quality, budgeted the funds, and
read the reviews. You see, when Joe gets to
the store there is a similar item next to the
$250 product that is $400-but it has been
marked down from $550. Now, our good friend
Joe has a decision to make, he knows what he
is buying if he buys the $250 item, but the
“deal” or the perceived value of the more
expensive item is oh-so-tempting. In our
consumerist society most people will throw in
the extra funds and without doing the
research, buy the more expensive item. Sound
advice says that before making an impulsive
decision, it is wise to look at the item
objectively and rationally to see whether the
extra expense equals a better value.
Speaking of spending on
impulse, a poor financial trend is gripping
our society in the form of retaliatory
spending. For example, your child has a
credit card “just for emergencies”, well they
might need an “emergency” new (insert
frivolous expenditure here—jacket, video game,
amusement park ticket, puppy) after you get
into a fight, their way of financially
“punishing” you. Hey Husbands—wives have been
learning this trick too. Psychologists refer
to this as POP, or pissed off purchases. Also,
spending as an anti-depressant falls into this
category, too. So, the way to curb this is to
either give yourself a cash budget or leave
the plastic at home when you are in need of a
little retail therapy, or perhaps, getting a
more constructive hobby.
On the topic of
teenagers- a small side note. Right now there
is a growing epidemic of parents “bailing out”
grown children, and while this is a nice idea,
with adult children boundaries need to be
clearly drawn. Mom and Dad are not ATMs and
there is no reason that 35-year-old Jimmy’s
financial mistakes should keep his parents
from retiring. There comes a point when you
are no longer helping, you are enabling, and
this ends up hurting (emotionally and
financially) all parties involved.
One thing that keeps
people from enjoying their financial
prosperity is the paralyzing fear of running
out of money when this is an illogical fear.
This is a big issue for children of the Great
Depression, they have a decent bank account,
but they are still reusing aluminum foil and
hoarding $20 in the family bible. This is one
of the many reasons why sitting down and
having a conversation with a financial planner
may be a good idea, a professional can help
you evaluate your lifestyle and make decisions
to live the best lifestyle possible while
still working constructively towards your
future goals.
Have an opinion or a question you would like me to answer, then write to me!
http://www.CarlHampton.com
“Your” Money Matters By Carl Hampton
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