By Carrie Smith. This story originally appeared in Careful Cents.
We all have dumb moments. Sometimes we get caught up in the hype, lose our cool and cave into making bad decisions. When we look back on them, we think “All I needed was some common sense”. Below are six dumb (and dumber) things smart people do, when it comes to money.
1. Signing financial papers without reading them
I’ve personally been guilty of this, especially when I was younger. I thought bankers, loan advisers and tax experts were the all knowing gods of finances.
Well news flash, they are just slightly (more) educated people than you and I. When they put papers or documents in front of you, take your time and read over the fine print.
Nothing bad can come of reading the information and being 100% confident with what you’re signing. Once that pen meets the paper, you don’t have the “I didn’t know what I was signing” defense. So be careful and avoid this dumb mistake.
2. Using retirement funds for things other than retiring
It’s tempting for everyone to see a lump sum of money sitting in an investing or retirement account and not touch it. But taking retirement funds out early and for other than it’s intended purposes, is very dangerous.
Not only are you sabotaging your financial future, you’re tripping yourself up in the present too. Retirement funds are sometimes stupidly used for things like repayment of debt or investing opportunities. Gambling with your future is too risky.
3. Consistently buy stuff you can’t afford
This decision seems simple enough, yet we all make this mistake over and over. Our memory banks have a short fuse and we forget how badly we handicapped ourselves the last time we bought something we couldn’t afford.
How do you know you can’t afford it? Generally you don’t pay out of pocket for it. If you have to take out a small loan, put it on a credit card (and don’t pay it off each month) or borrow money from another source, you shouldn’t be buying it.
4. Staying too busy to focus on finances
This one I don’t really relate to, since I love taking time to budget, save, invest and manage my finances. But a lot of people aren’t financial nerds like me, and they feel they don’t have time to do any of those things.
Well that is a terribly wrong way of thinking. Nothing could be more important than taking the time to create a financial plan. You’re actually deceiving yourself by doing this, and trust me it will catch up with you.
5. Trusting people’s advice instead of their lifestyle
Words are worthless if they don’t have evidence to back them. Anything people say doesn’t matter if their lifestyle doesn’t reflect it. I don’t want you to take my advice just because what I say is smart or makes sense.
Look at my life, my choices and the evidence I have to support my decisions. If they line up to what you believe in, then you know if it’s quality advice. Blindly trusting in people’s advice is not something smart people do.
6. Using debt to pay off debt
The only way to truly pay off debt, save for the future and become wealthy, is to cut your spending and increase your income. You can’t pay off plastic with more plastic or take out a loan to pay off another one (aka IOU’s).
That’s just borrowing from one to pay another, and in the end they will both be begging for more. Using debt to payoff other debt is cheating and puts you into a vicious cycle (like payday loans and advances).
If you find yourself making dumb (and dumber) decisions with money, take a moment, breath and embrace common sense.
What’s one dumb thing you’ve done with your money?