4 Risky Money Mistakes to Avoid

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Avoid these Common Money Mistakes!

Avoid these Common Money Mistakes!

Personal finance is not just about budgeting, saving money and spending more wisely. Ultimately, the way we manage our money is a reflection of our personal priorities and values in life; most financial decisions are really “lifestyle” decisions.

Some of the biggest money mistakes arise from bad habits, indecision, or lack of awareness of the possible risks and consequences of our actions. Others are the result of good intentions – wanting to help a friend get a loan, or wanting to earn some extra money on the side to help pay for a family vacation.

Although we can all make some improvements in how we spend and save, some money mistakes are too big to ignore. If you avoid these major money mistakes, you’ll have a more comfortable financial life, and hopefully have a happier, healthier life overall.

Four money mistakes to avoid:

1. Smoking.

A cigarette habit costs thousands of dollars over the course of your life, in addition to all the health care costs. That money could have bought a lot of new cars, college tuition or house payments. According to this website on the cost of smoking, a one pack per day cigarette habit costs over $15,000 in 10 years just for the price of the cigarettes – not counting all the hidden costs, such as higher health insurance premiums, lost interest earnings (that you could have earned by putting that money in the bank instead) and decreased value of your house and car (since most people don’t like to buy homes and cars that smell like smoke).

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2. Gambling.

Americans spend over $90 billion per year on gambling and while many of these gamblers are likely just enjoying a fun night out, there are problem gamblers and addicts who don’t know when to stop. American gambling losses totaled nearly $400 per person in 2010. Don’t get blinded by the dazzling casino lights; keep in mind that in gambling, the house ALWAYS wins. And if you think you might have a compulsive gambling problem, call Gamblers Anonymous at 1-888-GA-HELPS.

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3. Foreign Exchange Trading.

This is one of the riskiest, most complicated types of investing. It is possible to make money from foreign exchange trading (or “forex trading”), but it’s not for beginners or for the faint of heart – values of currencies can fluctuate rapidly for many complicated reasons that are beyond your control and you can lose money just as well as you can make money. People who succeed in forex trading tend to be sophisticated investors, full-time forex traders, or big banks who have complex financial algorithms helping them predict prices and deciding when to buy and sell.

If you do decide to try forex trading as part of your investment strategy, tread cautiously, do some extensive research before you get started, and don’t risk more money than you can comfortably afford to lose.

4. Co-signing on a loan.

Some money mistakes start with good intentions. Many people want to help their family members make a purchase, whether it’s helping a son or daughter buy a car, or get an apartment, or even buy a house. But co-signing on a loan is a risky move that can lead to trouble down the road. The trouble with co-signing is that if the person you’re signing for fails to pay their debts, you’re equally liable for the debt.

Don’t co-sign a loan unless you’re fully prepared to pay it off by yourself – otherwise you’ll be left holding the bag. Or instead of co-signing on a loan, if you want to help family or friends make a purchase, give them some cash upfront rather than risk your credit score by co-signing.

In writing this article, I’m not trying to be judgmental toward people who smoke, who occasionally play blackjack or bet on sporting events, who dabble in forex trading, or who help out a friend or relative by co-signing on a loan. But it’s important to keep in mind that all of these activities carry a certain level of financial risk that might outweigh any benefits or enjoyment that you get out of them.

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So before you place a bet, light up a smoke, or decide to co-sign on a loan for your nephew’s new business in foreign exchange trading, keep in mind that there are risks as well as rewards. And proceed with caution.

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  • B Loyd

    Didn’t do the first 3 in the article, but I did make the mistake of doing the 4th, which is something I will NEVER do again…not even for family members. I co-signed for a close friend on a used vehicle. At the time she had a job, which she’d had for over a year, and things were pretty steady and happy in her home. However, about the time that my family suffered a death in the family, which had me traveling out-of-state and being gone for nearly 2 months, she lost that job, couldn’t make her monthly auto loan payments, and let her must-have auto insurance lapse! Upon my return, I began receiving rather nasty calls at my work from the lender, and I was forced to not only take the vehicle back, but put it on my own insurance, and pay the notes until I was able to sell it for existing balance. It damaged my faith in her, hurt my credit (for a little bit), and cost us our friendship. But at least I learned a valuable lesson! Don’t co-sign if you value your own family, a good credit score, and overall financial stability.

    • http://www.BenjaminGran.com Ben Gran

      Thanks for sharing your story, B Loyd! That sounds like one of the “worst-case scenarios” of co-signing. There’s always a chance that the person you sign for might lose the ability to meet their obligations, which then leaves you on the hook.

      Thanks for reading, and thanks for the comments! Best wishes.

      – Ben Gran

  • Ryan Birkenholz

    Well said Ben. I have never done any of these things (unless you count the lifetime losses on the order of about $150 at the casinos), but have been asked (ans somewhat tempted) to co-sign a loan.

    I had a bad experience once where my wife and I met one of our friends downtown that flew in for the weekend and was going to stay with us. They wanted to stay out and I wanted to go home, so I took a cab and agreed to take her luggage home with me. I got home and about 30 seconds after the cab left, I realized I forgot the luggage in the trunk! I did not remember the name or number of the cab. It turned into one of the worst weekends of my life tracking down the luggage which contained her passport, blackberry, and some valuables. I use this experience often when I am faced with taking possession of someone’s belongings…what are the risks involved?

    Co-signing is the same as taking possession of someone’s obligation to pay back the loan, so be careful.

    • http://www.BenjaminGran.com Ben Gran

      Thanks for reading, Ryan! That’s a very good point. Co-signing a loan is just like assuming responsibility for someone else’s “baggage” – if you’re not prepared to carry the burden, don’t sign on the line.