Dumb Ways You Throw Away Your Money

Posted on: May 9th, 2010 by

Financial Planning - Rockville, MDIts easy for our emotions to take over and force us, or rather convince us to make irrational decisions.  Our money is not exempt from these decisions.  But, you have to remember, from here on out, that you need to only use logic when it comes to finances.  Some people can make a go of it on their own, others employ the assistance of a financial adviser.  One of the biggest mistakes people make is coming to the conclusion that because its on sale, its a good deal.  If you are going stereo shopping and you see two marked at $400, but one is $300 off, which would you buy?  If you use your logic and reasoning, you would buy the one that got a better rating from consumer reports; but if you react like most people, you buy the one that is on sale because its a bargain.  In fact, research has found that people who wouldn’t normally spend that kind of money on a stereo before will buy the discounted stereo based on the fact that it is discounted.  The reality is, $400 is $400, and if you normally wouldn’t spend that kind of money on a stereo in the first place, you shouldn’t do it now.  Before you splurge, evaluate whether the product is worth that in enjoyment.  Also, consider how often you will use the product and if there is a cheaper product of similar quality out there.

The number of people who have money in savings accounts, earning less than 2% I might add, while carrying credit card debt, usually with interest rates above 12%, is mind boggling.  People tend to use what is called “mental accounting” and compartmentalize their funds.  Often people have the money to pay off their entire debt, but choose not to do so because they are afraid to dip into their savings.  The reality is, you are not earning enough interest on your money in savings to justify not paying off your debt.  You are losing money everyday in interest.  If you have the money to pay off your credit card debt and still pay your bills, do it. Worse case scenario, if there is an emergency, use your now zero balance credit cards to help and then pay them off as soon as you can.

Finally, people have begun hoarding money again as a result of the economic climate.  People are so afraid of running out of money, they don’t enjoy the money they have.  If you are legitimately worried about running out of money, you should sit down with a financial planner and work out the math.  Make sure you consider worst case investment scenarios, not just the averages.  That should make you more comfortable about weathering a bad patch in the future.  Then, if you still have more than enough, make a plan that will allow you to enjoy your wealth by either spending the excess or giving it away.  Money, after all, is a means to an end, not the end.  You save it to make you and the people you love calm, comfortable, and happy.  Enjoy it!


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