(Guest post by Laura Adams)
Just because I’m a personal finance author doesn’t mean that I’ve never messed up when it comes to money. You can be sure that I’ve made my fair share of blunders over the years, but I’m grateful that none of them ever put my financial security in jeopardy. I want to share them with you because it’s so much easier to learn from other people’s mistakes than it is to learn them the hard way. If I could go back in time, here are seven slip-ups that I’d fix:
1. Not contributing to a 401(k) sooner
When I was in my twenties, any information I got about retirement plans offered at work went right into the trash can. I mistakenly thought 401(k)s were only for “lifers.” You know—the employees who plan to work for the same company until the day they retire. I was committed to my jobs, but didn’t see myself staying in any one of them for more than a few years. If I had known how portable workplace retirement accounts really are, I would have signed up and made contributions much sooner.
2. Not funding an IRA earlier
I can’t remember exactly when I opened my first IRA, but I know I could have done it earlier. In fact, I could have done it when I was in high school because I had a part-time job during my junior and senior years. As long as you have earned income you can open up an IRA and contribute an amount equal to your earnings, up to $5,000. You’re allowed to fully fund both an IRA and a workplace retirement account in the same year.
3. Accumulating credit card debt
In the introduction of my new book, Money Girl’s Smart Moves to Grow Rich, I talk about how I got in trouble with credit cards right after I graduated from college and started working. Shopping for clothes and shoes became a compulsive obsession that I couldn’t live without. It took years to pay off the debt and to realize that buying stuff is a short-term thrill that has no connection to real happiness.
4. Overspending during the good times
When times are good and you have plenty of discretionary income it’s easy to inflate your lifestyle. I’m guilty of letting my spending match my money instead of being diligent about investing extra income for retirement or using it to pay down debt more quickly.
5. Dipping into emergency savings
It’s important to have an emergency fund that could get you through a financial rough patch, like getting laid off. Ideally you need at least six months’ worth of living expenses saved up. But the challenge is to never touch it for anything other than a real emergency. I’ve rationalized dipping into emergency money for non-emergency purposes on several occasions. Try keeping the money in an FDIC-insured brokerage account that makes it less convenient to transfer funds into your checking account, so it’s not so easy to spend.
6. Being too greedy
Investing is all about getting a return on your money. In most cases, the riskier the investment the higher your potential return. That can make it awfully tempting to put your money into shady investments or to try to time the market to make a quick buck. Sometimes it works out, but many times it won’t. I’ve lost money in high-risk investments that I could have saved if it weren’t for good ol’ greed. Never put more money into a risky investment than you can afford to lose.
7. Procrastinating saving
It’s easy to tell yourself that you just don’t make enough money to start saving. You think that you can catch up and save huge amounts later on when you start making more money. The problem is that you don’t set good financial habits for yourself right now—kind of like the proverbial diet that always starts tomorrow. Nor are you taking advantage of the power of compounding interest that allows you to save less for retirement and end up with more, when you put time on your side. Stop procrastinating and take control of your finances now, rather than later.
(Photo by doobybrain)