The more I learn about personal finance, the more I am aware of the well-intended decisions that actually sabotage our progress.
We begin to make financial decisions based on the mashup of knowledge (or lack of) we gather from our surroundings: the conversation with our family at the dinner table, the clerk’s savings advice at the register, the adds embedded in our social media feeds.
Often thinking that others must know best, we make choices without questioning the information or considering our own circumstances.
We have good intentions, but our results fall short. We are coming from a good place, but years later we are left wondering why we are worst off even though we did all the “right” things.
A few statements I’ve heard recently are perfect examples of good intentions that can turn into trouble…
“I want to make money with Uber but my car is too old… I know I can get a great deal on new car even with no money down!”
“We need to cut cost significantly so we can save…I am very healthy, so we will just add me to the health insurance plan later on when we can afford it”
“This was just $10 dollar! It is not my size but I couldn’t pass this deal! I just HAD to buy it”
Personally, I remember when I got my first credit card. I remembered dad talking about the importance of building credit so having my application accepted made me feel like a responsible adult. Except that I had no idea how credit cards worked! I even remember adding the credit limits of my first two cards and calling it “Emergency Fund.”
#clueless
If we take the time to learn for ourselves, we find there are many ways to truly improve our finances given our individual situations and goals. All along it is important we don’t get captivated by short-term gains and overlook the long-term impact of our decisions. The short term win may satisfy our good intention, but in reality, we may not even be making a dent on our goals. Even worse, we may be going backwards.
Here are 8 common ways in which our good intentions can sabotage our financial progress.
1. Skipping insurance to save
A big aspect of a solid financial plan is to have the right type of insurance in place to protect our assets and our family. Insurance can be expensive but needing it and not having it can destroy years of financial progress.
Medical expenses are the number one reason for bankruptcies in the United States so skipping on health insurance to “save” is NOT a good plan. Same goes with not having life insurance if others depend or your income or failing to have other needed insurance such as car, homeowners, and disability.
Work with an insurance broker or compare multiple quotes on your own to maximize your savings; whatever you do PLEASE don’t go uninsured for the sake of saving your insurance premium. Not worth the risk!
2. Thrift shopping for items you don’t need
Shopping for second hand items is a great way to save. However, you can’t justify buying an item you don’t need or don’t plan on reselling just because it is deeply discounted. Buying something just because it is a good deal is a bad plan for your money.
The savings negate themselves by the simple fact that you bought something unnecessarily. Additionally, the power of compounding could have turned that seemly negligible purchase into significant cash.
3. Sourcing items to resell but never selling them
Many times, we accumulate items with the purpose of reselling them. We fill up our basement, garage and even pay for storage units with the intention of “one day” turning them into profit. One day never comes, and we find ourselves surrounded by never-ending clutter that cause us stress and anxiety on top of tying our hard-earned money on objects that never see the light of day.
If you are interested in selling collectibles or items you sourced at great prices, I suggest you test the selling aspect on what you have before you keep collecting. It may be difficult to part with things or you may not enjoy selling at all. Be honest with yourself if that’s the case and have a true financial plan that doesn’t take over your home (and peace of mind).
4. Purchasing extended warranties
Many would argue that purchasing protection plans is a great way to “protect your investment.” However, companies can make more than 200% profit on extended warranties by leveraging your fear and offering “protection” at a premium price.
My suggestion is to have your own savings (or pay yourself the premium) to cover any issues you may encounter with your items including having to replace it. Alternatively, you can save by researching independent companies that can offer you a much better price for the same level of protection.
5. Buying items with monthly payments
A common phrase that can slowly erode your financial progress is “I can afford the monthly payments.” But what if you had the cash in hand? Would you make the same buying decision?
Way too often, we fail to assess the true cost of a purchase because we are only looking at the price per month; we do this for several items and next thing we know our entire paycheck is going to monthly payments.
I find that since I decided to save for purchases rather than opt for financing I simply buy better. Saving ahead of time means you must be patient and delay gratification. On the flip side, you won’t be paying for items years after you enjoy them or experiencing panic if an emergency shows up and you can’t make the payment.
A small monthly amount may seem harmless until the unexpected strikes leading to a fast accumulation of interests, penalties and fees that can truly wreck your finances.
6. Prioritizing price over quality
If you are only making decisions based on price, you may be spending more than you have to by having to constantly replace and repair.
From cheap clothes that fall apart on the first wash to awful experiences with contractors, I have learned my lesson – if the cheapest option is the only one you can afford then waiting a bit may be best. Quality is important and shouldn’t be overlooked.
Take your time when buying items you plan to use often, and check references and quality of work when researching services. Price should certainly be considered but it shouldn’t be the only aspect you think of when making a final decision.
7. Micro-investments
Micro investing allows people to invest very small sums of money in a very convenient way using apps. However, the issue I see with this approach is that if this is your only investing strategy you will be missing out on making significant traction with your finances.
Something is better than nothing but we should be careful with distracting ourselves with tiny actions that lead to minimal outcomes. It may be a good way to dip your toes in investing but don’t stop there.
I know researching a brokerage account and making investing decisions can seem overwhelming which is why these micro investing apps are becoming so popular. Nevertheless, there are a variety of resources that can help you learn about personal finance and investments even if you are a complete beginning. (I am planning to set up a resources page soon! )
8. Leaving all financial planning to someone else
Having someone else take care of your money is a mistake too many regret when is too late. You should always be involved in your finances even if you are not jumping over joy when dealing with numbers and spreadsheets.
If you use a financial advisor, you should still be involved in every decision and know where and how your money is invested. The same goes if you share finances with your partner even if you are a stay home parent and don’t work outside the home.
If money is a subject that intimidates you, you can join online communities that can help you learn and advance your financial literacy. You can also begin to learn on your own by picking up a book from them library or listening to podcasts and audio books. It is totally worth it to address any money stories of your past that are making you avoid money conversations in your present. Whatever route you take, don’t be blind to your own money, it is important that YOU are aware, informed and empowered to make decisions about your finances.
Making mistakes with our money is how we learn many of the lessons that ultimately boost our progress. The important thing is that we keep questioning conventional advise and we take charge of our financial education.
Good intentions are not enough to drive smart choices with money; they serve us best when we combine them with knowledge of, not only personal finance, but also ourselves and our tendencies.
Your turn now…have you ever sabotage your financial progress with good intentions? What are your favorite resources to learn about personal finance?
