Posted: February 28th, 2011 | Author: Joe | Filed under: Retirement, Tips | Tags: Home Buying, Investing, Mistakes, Retirement, Saving, Tips | No Comments »
Yahoo! contributor Kris Calhoun recently wrote an article for their “First Person” column titled: First Person: How I’m Sabotaging My Retirement wherein he chronicles some of the money mistakes that have cost him the most.
I for one congratulate Kris for his honesty and willingness to examine and learn from his mistakes. After all, if we can’t learn from our mistakes then we are not only doomed to repeat them but no good will possibly come from them either.
It’s a cliche that we need to learn from our mistakes, but I’ve often thought that we should learn from other people’s mistakes as well.
And so I’d like to offer my thanks to Kris for sharing some of his mistakes, so that we may all learn from them.
Know who you are
Kris states that one of his biggest financial mistakes was buying a house:
“The home I purchased in 2008 is probably the worst thing I could have done to hurt my financial future…. At the time, my wife and I thought we were doing things the right way. We put a nearly 45% down payment on the home, took out a 5.35% fixed rate, 15-year mortgage, and made extra payments along the way.”
So far so good, right? I mean many people who bought homes in the last five years in particular are struggling, due to declining values, evaporating equity and job instability. But those don’t seem to be a factor for Kris.
He states how he did everything right, financially speaking – hefty down payment, low interest fixed-rate 15-year mortgage. These are exactly the things you should do to mitigate the effects of the housing crisis. In fact, I’d say Kris was ahead of the game since most people can’t afford to do these things, yet he did.
The real mistake Kris made was in not knowing himself and his spouse:
“we really don’t like the area we chose and have found that home ownership just isn’t for us (I worry about things constantly and am afraid to go on vacation anymore for fear that something will happen to the house)… I’m kicking myself for ever allowing myself to be talked into home ownership (I’ve always been more of an apartment kind of guy)”
So his mistake is really costing him more of his mental health and happiness, which in turn causes financial problems when he can’t recoup his costs when selling his house.
The lesson here is to know whether you’re inclined to be a homeowner before you become one. Home ownership is not something to be taken lightly or dabbled in – it’s a serious commitment of time and money.
Weigh the pros and cons of job hopping
The next mistake Kris shares with his readers is his career change from hotel management to freelance writing.
There are some obvious hits to your financial bottom line here:
- reduced income (at least short term)
- reduced consistency of income
- reduced (or non-existent) benefits like:
When you freelance, you are responsible for all the stuff your employer used to take care of. You’re on the hook for paying for heath care and contributing 100% to your retirement plan – all on a lower salary!
Kris may eventually earn more as a freelance writing, but it’s going to be a lot tougher than hotel management.
For the record, Kris made the switch to spend time with his newborn son. It’s a goal I can admire, since my wife made a similar choice 8 years ago and we’ve been living on a single income ever since. But these kinds of career moves take a lot of planning to make them work…
Risk avoidance investing
Perhaps because of his move to freelance work, Kris admits his investing style is much too conservative. This is a good thing, when you need the funds relatively soon. But for a retirement that’s decades away, low risk, low return investing choices are more detrimental.
He says his holdings are primarily in low-risk, income style assets. There are easy ways to get higher returns with little to no effort, and still remain diversified so sticking to fixed income with retirement 30 years away is a needless mistake, in my opinion.
No room for error
Lastly, kris admits to something I think a lot of people can relate to: Things are OK at the moment, but that’s mainly because expenses have been relatively low.
In other words, when prices start to rise and inflation really takes hold then things are going to get really bad. Without steady increases in income and with the cost of living rising daily, your standard of living will decline and at some point saving for retirement at all becomes a dream for another day.
Since we can’t control the global economic landscape, the best thing to mitigate this is to create as many side income streams as possible, cut your expenses as much as you’re comfortable with, and be involved in local and national elections to ensure that fiscal restraint and responsibility once again take hold in government.
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Posted: May 6th, 2010 | Author: Joe | Filed under: Investing | Tags: Investing, Mistakes, Suze Orman, Tips | No Comments »
Here’s a video from the Today Show in which Suze Orman shares some investment advice for beginners. She outlines what she sees are the 5 common mistakes investors make.
Suze Orman Investment Advice.
- Investing before you’re ready.
“Better to do nothing than do something you don’t understand”
That’s a great quote, and very applicable to investing.
(On a side note, poor Matt Lauer asks whether people invested in subprime mortgages just weren’t ready – as if the independent investor was buying subprime shares in his 401(k)!)
- Using a financial advisor who only “sees” one person in a couple. There’s a great local car commercial I keep seeing where the car salesman keeps asking the man questions while the woman is answering. The salesman plows on as though she weren’t even there, and eventual she fades away. Very powerful. It’s like that with investing but more so because a couple’s financial situation is far more reaching than a car purchase.
- Being afraid to invest when the stock market is going down.
“Be greedy when other’s are fearful.” – Warren Buffet.
- Being an all-or-nothing investor. Don’t focus on buying one thing, or following one asset type. I wonder how many are doing that with gold and other commodities. Remember tech stocks in 1999?
Suze Orman Investment Advice - Don't Make These Mistakes
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Posted: October 26th, 2009 | Author: Joe | Filed under: Credit | Tags: Credit Cards, Debt, Mistakes | 4 Comments »
CreditCards.com has an article (by way of Yahoo finance) that rates 10 common credit card mistakes on a scale from 1 to 10. I’ll let you read the full article for all the details of why each is rated the way they are, but here’s the list and my thoughts about each.
Paying Late
How bad is it? 6
My thoughts: I’m not sure why they only gave this a 6. Perhaps because it can be reversed by timely payments for a consistent length of time. I would personally give this about an 8 since one late payment is usually enough to trigger usury level interest rates and fees.
Paying Only the Minimum on Your Card
How bad is it? 4
My thoughts: 4 seems about right to me, after all, it’s not going to cause irreparable damage to your finances, or put you so far under you’ll never get out, the way a 30% interest rate could. But it’s not something that you should do and it can easily rack up thousands in extra interest payments. Still, it’s one of the easiest mistakes to fix, provided you have the funds to pay more.
Buying On a Card Just For Rewards
How bad is it? 1
My Thoughts: This one is kind of silly, provided you pay your balance every month. They seem to agree, since they only gave it a 1. Still, I’m not sure this is really a “mistake”.
Missing a Payment
How bad is it? 9
My Thoughts: This is easily a 9, if not a 10. Missing a credit card payment is like setting off a dirty bomb in your kitchen – it’s likely to ruin your life in the immediate future, and for a long time afterward. It’s the nuclear version of the first mistake (paying late).
Having Too Many Cards
How bad is it? 6
My Thoughts: This one feels right to me, unless it’s a store card. Somehow, applying for a store card to get the initial 15% off on your purchase that day just seems more wrong than a 6.
Maxing Out a Card
How bad is it? 7
My Thoughts: Again, 7 feels right. It’s going to negatively impact your credit score, but it won’t necessarily cost you more than the stated interest on the balance. This is more of a problem because it leaves you with less options, less extra cash and creates the potential for serious damage if you should miss a payment.
Playing the Balance Transfer Game
How bad is it? 5
My Thoughts: Also known as Credit Card Roulette. This is probably middle of the road in risk. It really depends on 1 thing: Do you have a plan to pay off this debt, or are you just move it to another card to max out the original one again? If you do, then it can be an excellent tool to help get a jump on higher interest debt. If you don’t have a plan, then you’d better not get caught holding the bag when the transfer offers run out and the interest rate climbs. And that’s not to mention the transfer fees. 
How bad is it? 9.5
My Thoughts: Yeah, this one is pretty bad. Most of the time, you just end up paying more for something you can do yourself, and you could do damage to your credit score in the process. See Debt Consolidation and Your Credit Score. for more.
Getting a Cash Advance?
How bad is it? 8
My Thoughts: It’s up there in the 8-range. You’re basically admitting you have no money management skill if you use this. It’s a symptom of a much bigger problem, and a costly one too.
Using a Card in a Pinch
How bad is it? 2
My Thoughts: This is a much smaller version of the cash advance. It’s not the outrageous interest and payment terms of the cash advance, but it’s still a symptom of poor budgeting and spending habits. 2 feels about right. If you don’t have it, don’t spend it.
What do you think, did they miss any mistakes or completely blow the rating?
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Posted: July 22nd, 2008 | Author: Joe | Filed under: Investing, Retirement, Saving | Tags: 401(k), Investing, IRA, Mistakes, Retirement, Retirement planning, Saving | 2 Comments »
According to a recent BankRate poll:
“Only about three in 10 workers (28 percent) expect to have enough money to retire comfortably. “
Summary:
* “One-third (33 percent) say they’ll have just enough to get by.
* Two out of 10 (17 percent) say they will not have enough money to retire without worrying.
* Nineteen percent say they are afraid they’ll never be able to retire.“
Which group are you in?
Chances are, if you’re in the 69% outlined above it’s because you made emotional decisions to make the wrong move at the wrong time. That’s what the analysis of the report is from BankRate.
What kinds of mistakes?
“One out of six Americans have increased their retirement savings as a result of the slumping economy. …But experts are stunned that nearly 16 percent have actually increased the amount they’re saving as a result of the current economic downturn. “
I’ll say! Economic downturns are exactly the time people should be buying more equities in their retirement accounts. Of course, even if you’re setting aside the same amount as you were 2 years ago you’re buying more now. That’s the beauty of dollar cost averaging. But here’s the other thing – “experts are stunned”! I think this is because experts don’t have a handle on the average person and his knowledge or awareness of investing.
Experts are stunned because they are financially literate and know you should buy more when the market is down and buy less when the market is up, all other things being equal. But the average “man on the street” only hears and sees that the world in general and the economy in particular is going to hell in a hand basket week after week in the papers and the nightly news. There is a definite lack of context and historical perspective in the news media today, and the financial media isn’t very different.
“”That seems to me very hard to explain, or understand,” says Alicia Munnell, director of the Center for Retirement Research at Boston College.”
Because they have financial training and don’t feel the fear and panic the average worker feels.
To be fair, it isn’t as though the majority of 401(k) and IRA participants is pulling their money out of the retirement fund in favor of the mattress.
Here’s the breakdown:
- 15% Decreased contributions.
- 16% Increased contributions.
- 73% Kept contributions the same.
- 8% Stopped contributing altogether.
- 9% Made a withdrawal from your IRA or taken a loan from your 401(k) or retirement account
But the 27% that have put their retirement in question, if not jeopardy, by decreasing contributions or withdrawing funds prematurely are only shooting themselves in the foot.
Have you cut back on your retirement savings? If so, do you regret doing so?
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