What's up, y'all!
I'm excited to share the results from the money survey. We're first going to talk about worst mistakes, why those decisions weren't the best, and what they (and you) should do differently.
Let's get started!
Female, Age 31:
"Buying a car without warranty."
A warranty is like extra protection on a purchased item. Auto warranties help pay for "certain defects or malfunctions during a specific timeframe (usually based on mileage or time) after you buy a vehicle" (consumer.ftc.gov). If something happens to your vehicle during the specific timeframe, the repairs are free. Nevertheless, warranties do cost extra, so if you are thinking about purchasing a vehicle, appliance, (anything that's a large purchase) soon, please consider and save for the cost of a warranty.
Why was this a bad money decision?
Because issues can happen during the time that the warranty could have covered, but you are now responsible for ALL the repair costs.
What should we do differently?
Honestly it wouldn't hurt to buy warranties for your vehicles, appliances, furniture, and certain technology products.
If you decide to purchase a warranty, please DO NOT FINANCE (take out a loan or add to your loan) the cost of a warranty. Anything extra added to the product your purchasing should be paid in cash - why? Because the warranty is only for a specific period of time and many times its life time is less than the life of the loan. Putting the charge of the warranty on the loan will cost you more money in the long run (because of interest) and you will pay for it even when its life time is up.
Male, Age 32:
"Student loans."
Student loans provide a way for individuals to attend college without having to pay for the costs upfront. There are different types of loans: federal, private, unsubsidized, subsidized, etc. No matter the loan, students are typically expected to start paying back these charges 6 months after graduation.
Why was this a bad money decision?
Although student loans provide convenience for those who can't afford college, they also give students extra financial stress after graduation. Most students do not fully understand their loans terms, amounts, or the type of loans they get when taking them out.
In fact, many perceive that they'll make enough money to pay them off with little to no stress when in reality, they will most likely have enough to survive. Starting salaries do not promise the high dollars amounts like other experienced positions do, and with becoming an adult for the first time, students will be expected to pay for rent, food, bills, insurance, etc. ON TOP of trying to pay down their student loans. Needless to say, student loans do not always have a promise of success on the other end.
What should we do differently?
Parents need to start saving (in a 529 College Savings Plan) for their children's college expenses; OR inform their children of their financial incapabilities for college, WELL IN ADVANCE, so their children can start preparing for tuition costs.
Students need to be open-minded to cash flowing options (like going to a less expensive school, becoming an RA, competing in college athletics, working student jobs on/off campus, attending trade schools, attending part-time instead of full-time, etc.) that allows them to gain education, money, and resources without taking on the burden of student loans.
Pray about you or your children's decisions with college. I did this after taking a personal finance course in high school and am so thankful for God's provision (Got school completely paid for: click here to read the article).
Female, Age 40:
"Not investing soon enough."
Investing in retirement is crucial to living a comfortable life in your old age. Whenever you invest, your money compounds on interest (also known as compound interest). This means that the money you invest grows two ways: on the principal (the amount you gave) and on the interest earned. The sooner you start, the more your money grows!
Why was this a bad money decision?
The later you start investing, the less money your account will earn (based on compound interest). "Not investing soon enough" could easily mean that this individual sadly cannot afford to maintain the lifestyle they are currently living because of the lack of funds and short time-frame.
What should we do differently?
Start investing in retirement (especially a Roth IRA) ASAP. Dave Ramsey recommends sowing 15% into your retirement account.
Calculate a comfortable annual income you'd prefer to live on during your retirement. (Remember: consider bills, medical expenses, trips, etc.)
Use an investing calculator to determine how much you'd need to save per month (and if your annual amount is enough).
Save EVERY month towards retirement.
Female, Age 65:
"Too many credit cards."
Credit cards allow us to build our credit and spend money without immediately pulling from our income. Discover, American Express, and Wells Fargo are examples of various credit card companies.
Why was this a bad money decision?
Having too many credit cards can allow you to spend more money than you can afford to pay off, causing you to go into credit card debt. Credit card debt is one of the worst debts you can get into because of the high interest rates compared to other debts.
What should we do differently?
Only have 1 or 2 credit cards per person and set limits to how much you want to spend. I have two credit cards (1 of which is used strictly for monthly subscriptions and is charged the same amount every month, while the other is used on occasion.)
DO NOT open another credit card if you have maxed your current one(s). This will only tempt you to spend money you already don't have.
Live on a monthly budget. The reason many people get in credit card debt is because they start spending too much money or purchasing items they really can't afford. Living on a budget will help you live under your means and keep money in your account until your next paycheck.
Male, Age 48:
"Credit card balances early in marriage."
A credit card balance is the amount spent on the card and is owed each statement balance (month). Each credit card is given a limit, which is the max amount of money you can spend on the card.
Why was this a bad money decision?
The issue with credit cards is they tempt us to spend more money than we have in our checking accounts. If the balance is too high, you may not be able to pay it in full, causing you to fall into credit card debt. Again, credit card debt is one of the worst debts you can get into because of the high interest rates compared to other debts.
What should we do differently?
Live on a monthly budget. Life changes (like marriage, moving, children, job change, etc.) can cause unintentional money mistakes that burden us for the rest of our lives. Benjamin Franklin says, "if you fail to plan, you are planning to fail." The same is true with our money. Monthly budgets help us reach our goals, prepare for the future, and spend responsibly.
Get rid of your credit cards if necessary. If swiping your credit card is too tempting, then cut them up. Having no or a poor credit score is better than being thousands of dollars in debt.
Live on less than you make. To ultimately stop spending too much on your credit card, you'll need to sit down with your spouse and commit to living on less than you make each month. This means less spending, eating out, shopping, and buying unnecessary expenses (like gas station drinks and snacks, or getting your nails done) that steal your money.
Female, Age 68:
"A new car with a payment that was a stretch to make. Income changed and we let it go back."
New cars depreciates faster than used cars, meaning that the car's value drops significantly quicker than a used car's value. Because a car goes down in value over time, I highly recommend paying for a USED CAR IN CASH. Why? Because financing a car causes you to pay interest (extra money) on an asset that goes down in value (will never be worth what you paid for it in the beginning). Personally, I do not think it is wise to take out a loan for an item that depreciates so quickly.
Why was this a bad money decision?
First, clearly the car's payment was too much for this marriage couple to manage with their current income. When you finance a car, you not only have to pay for the loan payment, but you also had to pay full coverage insurance, gas, maintenance (oil change, new tires) and any unexpected repairs. Costs can add up quickly.
Second, their income unexpectedly changed. Just because one's current income can afford the payment on paper (mathematically) does not mean life will not happen during the loan term. This is another reason why paying for a car in cash is wiser than taking out a loan. Had they paid for a used car, they could have kept the vehicle despite the income change and prevented as much stress along the way.
What should we do differently?
Never have the total value of all your vehicles be more than HALF your annual income. "You don't want too much of your wealth tied up in things that depreciate (or go down in value)" (Ramsey Solutions).
Always save up and pay for a car IN CASH. This will require sacrifice and discipline, but it will give you so much peace in the long run!
Set an amount per month to save based on the type of vehicle you want to purchase. This will require you to do a monthly budget, but I PROMISE, you will be thankful you did. Briston and I purchased our mini van in cash and have a more freedom in our budget to save for future goals.
Let me know what you think in the comments section and stay tuned for Part 2 - What Has Been Your Best Money Decision? Thanks for reading!
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