More now than ever, it is important for people to have savings and be able to invest. Like most people I made a lot of money mistakes that caused me to fall behind in my financial goals. Here are 3 pitfalls to avoid.
#1 Car Payments
One of my biggest wastes of money in the past was on cars. Ask the average person what they have saved for retirement, and they will tell you $0. Why, because they don’t have any money. Yet, these are the same people who are driving a new car.
My past spending on cars as a youth keeps me up at night. Did I need a car, yes, but had I paid cash for a car and invested the other money, I would be farther ahead. At the time, I worked for a financial firm where I wanted to be perceived as making money, hence the need for an expensive car. What a waste.
What I recommend doing is buying a car and paying cash. If you have to get a loan, get it for a minimum amount, and plan on paying it off sooner. My wife and I paid $5,000 for our last car, which has lasted over four years. It has cost approximately $2000 to maintain it and runs great. Had I taken out a loan for $20k, my payment would have been $386 a month. My current monthly cost is roughly $145!
Bottom line – Cars are not ASSETS; they are LIABILITIES. Our friends have $50K fancy SUVs but are maxed out in debt. A couple of years ago, both the companies we worked laid off, and we were okay because we had $0 car loans and nice savings.
I would encourage most people to buy a home. Yes, they are expensive and typically do not appreciate at the same rate as other investments such as stocks. However, do not use a realtor.
Paying 6% or any commission on one of your life’s largest purchases is waste because most real estate is online with Zillow, Redfin, or other websites. The most challenging part of real estate is the actual sale and transfer of the property, which is done by the title company. In most cases, you will see the same houses listed online, as the realtor would show you.
Bottom line – If you are selling, list your house for free on the popular real-estate websites. If you are buying, be aware that most homes are still listed by realtors. One thing you can do is negotiate the price by telling the realtor you don’t have one and have them LOWER their commission. That is precisely what we did last time.
#3 Credit Cards
One of the top things people say that can get you in trouble is credit cards. Most famous financial gurus go so far as to tell people that they shouldn’t have them because it is too easy to fall into significant debt.
However, I use credit cards because my wife and I travel a lot and get great perks like free upgrades. I get upgraded all the time at my favorite hotel chain and car rental for free. We are super religious on paying the card off every month.
Bottom line – If I didn’t travel or spend enough to get valuable perks, I wouldn’t bother with credit cards. It is too easy to fall into a major debt trap.