In this post, you will see all the worst financial decisions you can avoid, could have avoided and will avoid in the future. There are different categories of spending mistakes mentioned, and all of them can be relevant to you life at some stage or the other. So let’s start this list with the worst financial mistakes you can avoid in your 20’s.
Worst financial decisions 20 year olds make
1. Spending too much on a car
Who else is excited to buy their first car with tier own money? Have you been saving for the big day? Or have you decided to "afford" monthly installments for the new toy?
Either way, you are forgetting that cars, are a liability the moment you sign the dotted line. Cars depreciate in value quickeer than you can say "Lord love a duck".
After 2 years, 50% of its value is lost.
Whats much better is to get a second-hand car, preferably just 2 years old and pay half the amount. The bottom line is to purchase a car with less miles at as less amount possible. 20,00 miles is a good number to hunt for.
Because if you think about it, the basic necessity of a car is transportation. Some car which takes you from point A to point B without fuss. Getting a car loan to buy a car loan with retractable premium leather seats and high quality stereo system is called "spending too much on a car".
2. Trying to maintain the status quo
This financial mistake does not only pertain to young people.
Trying to keep up with the Kardashians’ glamour and lifestyle is not something most people can "afford". And in the process of "affording" monthly installments using credit card is a doubly foolish financial mistake to make.
3. Spending too much on a wedding
I hear bells ringing! Congratulations, you’re getting hitched to the love of your life! Sorry to slightly dampen your spirits now, but have you saved money for this big day? Kudos if you have been!
One of the biggest mistakes any couple can make is to not talk about how they are going to celebrate this big day. Everything counts, like the amount to be spent and the guests to be invited. There are plenty of ways which can cut down the costs of a wedding (its known as frugal weddings, NOT cheap weddings). Some ways are renting tuxedos and not mentioning the "W-word" while hiring a band or outdoors photographer (not at first, at least).
If you ask for help instead of gifts for your wedding, I pretty much guarantee you that the intense involvement and satisfaction you experience while having simple human interaction will outdo any fancy gifts which probably fade in a couple of months.
Worst financial mistakes house buyers make
Ah, buying a house and living in it… everyone has that milestone in their lives. I have too. Personally, my dream home shall have a nice garden with a swing and my room should have a lovely huge bookshelf which looks very premium and royal.
But sometimes, when you really really want a house, or your that dream home is being little over the budget, what do you do? What mistake do you want to avoid while getting a mortgage?
4. Failing to get pre-approved
So you’re gonna buy that dream home now. That’s great!
I’ll assume that you’ve thought about the credit score, and let’s say you have a somewhat average credit core. Its okay.
But have you considered getting the loan pre-approved by the banks?
Well, judging by the numbers provided by the Consumer Financial Protection Bureau, almost 50% of mortgage borrowers don’t even compare rates in the mortgage market.
Which, if you think about it, is pretty ironic. Given that when it comes to buying all other materialistic and useless things, shoppers scourge the best deals of the town. Its the opposite here.
When you get pre-approved by banks for house loans of a particular amount, it helps you get a better rates’ pitches from the lenders. The logic follows that if the banking institutions trust you for a loan, your credit history must be quiet dependable. And every lender loves trustworthy, dependable borrowers.
5. Saving too little for down payment
With the growing advent of people not being able to pay off the loans completely, lenders want some kind of payment to be down at the spot as an assurance that you will pay it back.
That’s whats know as "down payment"
So far so good.
But if the down payment is less than 20% of the total loan amount, you need to take a mortgage loan and pay the down first. That’s a double whammy. Saving too little for down payment is undoubtedly one of the mortgage mistakes most people make while buying a house.
Spending mistakes foolish people make
Some foolish people make all sorts of incomplete assumptions and commit spending mistakes. Some of the spending mistakes foolish people make are:
6. Being super-optimistic about the future
When was the last time you see posts on Instagram saying," Think about the bright side" or "always hope for the best and in general, just stay optimistic" Yeah, nothing wrong with that, but just don’t be way too optimistic about the future, especially in finance, please.
If you are being super-optimistic about the good times, it only makes sense that you ALSO PLAN about the super-worst that can happen. Spending mistake the foolish make is to think that they can drag along the bad times, often committing the fact that it kinda takes money to drag along the bad times. You know, just saying.
Money mistakes Canadians make
Taking about biggest financial mistakes people ever make, the list would be incomplete if some of the bad money mistakes Canadians make wasn’t included as well.
7. Spending more than you make
The debt-income ration for Canadians is at a very bad state – 1.63. It means that with every dollar earned, Canadians owe $1.63 in return. Which means huge consumer debts and in general, miserable financial planning skills.
Every time you get your paycheck, you are so tempted to buy this and that, that you often forget that today is not the last day of your life. You need to know the basic difference between a "need" and a "want", ad, and between what you can really afford and what you wish to afford in future.
8. Buying too much house
When you buy too much house, it means that you put in too much money for maintenance, insurance, mortgage, furniture and other utilities.
If you plan on renting your house as an additional source of income, that is possible, but remember : you do want to live in your own home when you retire, don’t you? Will all your retirement funds be able to cope up with the extra house you buy or like?
Get a modest little house and make sure you can live happily in it without all the headache of space getting wasted.
9. Counting on inheritance
When Canadians were asked about the source of financial help in retirement, 45% of them responded "inheritance". That means 45% of the respondents counted on an inheritance to save their asses in the retirement stage.
This is a big mistake. For starters, what assurance can your parents give, or anybody for that matter, that the money won’t get exhausted before they even pass it on to you? Canadians have their life expectancy rate to be till 82 years, which means that it is a possibility that the health care itself could eat up all the inheritance assets.
I’m not trying to be a bad guy wishing all your inheritance money is eaten up before you even be in your 30’s or 40’s. All I am saying is that it could be a possibility and you shouldn’t be totally dependent on your inherited money as a retirement fund.
All in all, these are the 9 major reasons many people cannot attain financial freedom yet. Even if you are guilty of making one of these financial mistakes, its never too late to accept and retrospect your poor choice. Start saving from now at least, and you can have a better peace of mind in your old age.
Are you guilty of any of these financial mistakes? What did you do to remove that debt, or, how do you plan on doing so? Do let me know in the comments below, and I’ll share my stories too!