The Ten Deadly Sins of Personal Finance

jellyfishWant to improve your finances but don’t want to spend a lot of time thinking about personal finance?  Instead of worrying about what you should do, avoid doing the things you shouldn’t do.  Here are ten:

1.  Do not buy a timeshare, ever.  While it sounds great to have a vacation place all your own, there are lots of fees, you are limited to a single week a year, which will never work out, and you may decide later you don’t really want to vacation in that spot and will not be able to sell it.  Sure, they say you can trade, but see how well that works out.  Normally find that it is better to just rent a place when you want to go for the flexibility it provides.  If you really like a location and want to be sure to have a spot, buy a vacation home and rent it out – it will be a lot easier to sell if you change your mind.

2.  Do not have a significant amount of money in cash or bank assets (CDs) when you will not use it for 10 or more years.  Inflation will take a significant dent on your savings.  It must be invested in equities, bonds, and real estate to protect its value.

3.  Do not have money you are planning to use within 5 years in stocks.  Stocks are a great investment, but there is certainly no guarantee they will do well over any 5-year period.  It may be a tough pill to swallow, but start looking to CDs and near-term treasuries for money that is needed a few years out.  If you need to have it within a month’s notice or less, a money market account is the way to go.

4.  Do not go without a will.  Without a will, the state will get to decide who gets your assets.  This will cause all kinds of stress for your loved ones.  Even if you’re still young and invincible, get a will together.  Also, let people involved know what they will be getting and maybe even send a copy to the executor to keep safe.  It will be tough enough on your loved ones when you die – they don’t need to be fighting over your assets.

5.  Do not go without disability insurance.  You are much more likely to be disabled than die, and you don’t want to live on SSI, if it even continues to exist.  If your employer doesn’t offer disability insurance, be sure to buy some on the private market.

6.  Do not go without life insurance if you have anyone depending on you.  If you are working and have a family that depends on your income, you need to have ten times your annual salary in term life insurance.  You can stop buying the insurance when you have built up enough cash to replace your salary (again, 10 times your salary).  It would be normal to buy 20-year level term when the children are born since that will last until they are into college and hopefully you will have become wealthy enough to be self insured by that time. (If you are investing regularly, you will be).  If you do not have a standard job but take care of the children, you should still have insurance to cover a nanny or other arrangements.  If you also take care of the house, money for more meals out, maid service, and other help will be needed.

7.  Do not buy whole life or any form of life insurance other than term life.  Whole life is significantly more expensive than term and the “savings” account attached pays a terrible rate of return and disappears if you die.  You will do a lot better buying the cheaper term insurance and then investing the difference.

8.  Do not loan money to a friend or family member.  It will ruin your relationships with them.  Instead, help them to learn how to get through their financial issues and handle money.  If giving them money is also needed, make it a gift.

9.  Do not buy a house with someone to whom you are not married.  The last thing you want to do is to break up and then own a house with someone you hate.  At least if you divorce, there is divorce court to help you divide up the assets.  If you just break up with a boy or girlfriend and they decide to take off and stop paying, it will destroy your credit or you will be stuck paying for the whole thing yourself.  Instead, have one of you buy the house and the other pay a rent, if desired.  If you do end up getting married, it will become both of your house anyway.

10.  Do not buy a new car unless you are worth at least $1 million.  The rate of depreciation is just too great.  Buy a four-year old car and save half of the value.  Buy it for cash, and you’ll save even more.

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Disclaimer: This blog is not meant to give financial planning or tax advice.  It gives general information on investment strategy, picking stocks, and generally managing money to build wealth. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. Tax advice should be sought from a CPA.  All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.


    • Thanks! Insurance (particularly disability and life insurance) are things many people go without and get away with it, but there are a lot of awful stories of families who see the breadwinner die or get disabled. Hopefully a few people will read this article and get term life insurance. Now go forth and sin no more 🙂

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