Debt Free

Caring too much about what your friends think. It's true. Far too many people place a lot of weight on what their friends think. This sentiment comes back to haunt them when they make purchasing decisions. Do you want that new Lexus because it is a well built car, has great resale value, performs well and cradles you in luxury? Or, is it more because a new Camry just doesn't make the same statement in your driveway? Are you more than a bit concerned with how the other parents think when you show up for soccer or to pick the kids up from Taekwondo class?

I've actually witnessed someone cost themselves several thousand dollars because, in her words, “What would my friends think?” about the brand name on her new plasma TV. She was perfectly happy with the image and aesthetics of the first set, but the brand name was another story entirely. The original TV was a major brand name too, not one of those special, no name, mass merchandise units. Now the more expensive unit did have a better picture and connectivity options, however, that meant nothing to this person. She didn't even notice the improved performance. It all came down to what her friends thought about the name emblazoned on that new flat screen TV on her wall. This is a perfect example of how placing too much emphasis on your friend's sentiments can cost you plenty of money.

Paying your taxes with a credit card. Don't laugh, people actually do this. So many people in this country gripe about their tax bill being too high, and then some Americans actually make it even higher with this ill-advised strategy. You'll fork over a credit card premium to use this method, to say nothing of the added cash you'll waste paying the interest on the credit card balance. If it will keep you form paying hefty interest and fees to the IRS, and it's the only way you can avoid paying them, use a credit card. If however, you just spent the money, that's kind of a problem, isn't it. File an extension and put some of your stuff on eBay. Don't run up your credit card balance merely for the convenience of putting your tax bill on your already overburdened Visa.

Not contributing to your company 401k plan when your firm offers matching. This mistake is repeated throughout the U.S. on a daily basis. It's most prevalent among younger employees. It's free money. If I set $500 on a table in front of you, would you snap it up? You bet you would. That's what your employer is doing for you, and you should treat it the same way. To see how much this little slip up could cost you, take a look at this example. If you earn $40,000/year, and your employer will give you a 1:1, matching contribution up to 2.5%, you can chip in $1,000 to your 401k throughout the year and your employer will do likewise. If you're 28 yrs old and plan to begin withdrawing money from your 401k at 65, here's what the difference would be from just that first year, assuming a 6%, compounded return.

That first year's contribution, without company matching, would be worth $8,636 when you began withdrawing at age 65. Had you availed yourself of your company's offer to match your contribution, it would be worth $17,272. If you contributed nothing at all, you'd have zip! So the decision not to contribute that $1,000 and grab the match along with it, cost you over $17,000. If you managed to get an 8% return, you'd have lost almost $35,000 at retirement. If you were fortunate enough to earn a 10% return for the life of the investment, that initial $2,000 would have ballooned into $68,008! That illustrates the power of compounding, how much a small increase in the rate of return will add to your investment, and the stupidity of leaving the employer's match on the table.

May you avoid making these crazy money mistakes. Your account balance will thank you for it.