The 7 Deadly Sins of Finance - and How to Avoid Them
The financial markets can quickly punish investors who make poor investment decisions, such as not being properly diversified or trading penny stocks. However, poor financial decisions such as over-borrowing and overspending can have damaging consequences as well. Here are what I call the 7 Deadly Financial Sins, which can lead to critical money mistakes, and what you can do to avoid them.
1.Greed: as you go through life achieving your successes and accumulating wealth, don’t forget to be generous. Donations and charitable gifts can go a long way to help others in need. This doesn’t necessarily have to be a check, old clothes, books, and furniture can mean the world to someone in need. When making donations to a tax-exempt organization with 501(c)(3) status they are typically also tax deductible.
2. Pride: I see far too many individuals that prefer to “keep up with the Jones' ” by purchasing expensive cars and clothes. Start looking at the true value of your purchases. Would you invest a large sum of money in an investment I told you would likely decrease by 20% in the first week, and continue to go down in value every year? Of course not! But think about that when buying depreciating assets you don’t need, with money you don’t have.
3. Envy: Comparing your financial status to others. Everyone has their own unique circumstances and approach to their finances. There will most likely always be someone that may appear to be, or may in fact be, wealthier than you. Making these comparisons will often lead to envy and jealousy. Instead, be grateful for everything you do have and work harder towards reaching your financial goals.
4. Gluttony: Overspending regularly and falling into debt. This is very easy to do with the ease of access to credit cards and the high limits they sometimes offer. Credit Card companies want you to overspend as they will collect absurdly high interest when you do. The bottom line is there is good debt, such as mortgages and student loans, and bad debt such as credit cards. Another easy culprit is online and/or impulsive shopping. The speed and convenience of online shopping can quickly hinder your ability to save your money. Get in the mindset that if you cannot pay for something in full when you get your credit card statement, don’t buy it and save up until you can.
5. Sloth: Remaining financially illiterate. This sin is particularly costly because it leads to so many other financial sins. Whether you take the time to read from reputable online financial resources or a few NY Times bestsellers to educate yourself on prudent financial and money management or hire a financial planner to help educate you on making smarter financial decisions, you must make the effort to become financially literate. For many of us, pensions are no longer as widely available as it as for many retired Americans. It is up to each individual to ensure they have a sound financial plan and save/invest diligently throughout your life to accumulate the assets you will need to retire.
6. Negligence: Not having a budget and emergency fund. There is no standard budget for everyone, as everyone’s incomes and expenses vary, however, everyone needs to create a budget to control their spending and ensure at least a certain amount is saved regularly. Adopt a simple “pay yourself first” budget. This can come in the form of systematic savings to a bank or investment account along with retirement contributions. If you don’t already have an emergency fund (at least 6 months’ worth of income) use the pay yourself strategy until you have an emergency fund and then you can begin an investment fund to add to regularly.
7. Lust: Getting divorced has become a much more common event over the years, however, the financial implications should not be taken lightly. Ensure you make a strong effort to invest more time and energy into your marriage.
Do you need help with your finances or are you concerned about what your retirement picture looks like?