Everyone makes mistakes — it’s a part of being human. But it’s those who learn to minimize their mistakes who are able to fight debt and to build wealth. Paul L. forwarded a Reuters article by Linda Stern that explores common money mistakes and gives advice on how to fix them. Stern warns that if you have chronic money problems, you’re basically subsidizing those that don’t:
Not everyone handles their money badly. [...] But some folks do make money mistakes that cost them dearly. Those people, who tend to be poorer and less well-educated, end up “subsidizing” the more well-to-do by overpaying for financial products and services, according to new research from Harvard University. Those overpayments allow savvier savers and investors to get the same products for less than their real economic costs might be.
What’s the solution? How can you make sure that you’re not one of the suckers giving everyone else a free ride? Stern gives ten suggestions, which I’ve paraphrased below:
- Educate yourself. “You don’t need a college education, or even a high school degree, to become self-educated about money,” Stern writes. Start paying attention. Read everything you can. Become financially literate. As Michael Fischer has told us all month in his video series: the more you know, the less likely you are to make a mistake.
- Don’t be afraid. Many people are immobilized because they’re afraid of doing the wrong thing. Or they’re afraid of the risks involved. If you’re too conservative with you investment strategy, you’re basically “leaving money on the table”.
- Know your mortgage. Remember the story from earlier in the month about the woman trapped by a mortgage she had failed to read? Don’t be like her. If you don’t know what your mortgage actually says, get it out and read it. Find somebody to help evaluate it, if needed. Take some time to research other options.
- Eliminate credit card debt. Do whatever you can to get rid of your high-interest debt. Take extra jobs. Give up luxuries for a while. Formulate a plan to get out of debt pursue it with passion. (You may want to give the debt snowball a try.)
- Know your bank. Learn how to bullet-proof your accounts. Set up overdraft protection. Schedule some automatic payments. Ask your bank to reduce or eliminate fees. Explore credit unions.
- Save and invest. Make it a habit. Establish an emergency fund. Open a retirement account. When saving becomes a priority, you will truly begin to accumulate wealth.
- Explore mutual funds. “Brokers who recommend specialized mutual funds often charge sales loads or hidden fees for them,” warns Stern. She recommends no-load funds. Or, better yet, index funds.
- Ask questions. This is vital. Don not simply accept what your insurance agent or stockbroker tell you. If you don’t understand something, ask questions until it makes sense. If something seems fishy, don’t be bullied into it. Use your head.
- Think of the bottom line. Stern warns that too often we think in terms of monthly payments, when in reality we should think of overall cost. Keep both in mind, and when possible make total cost your top priority.
- Trust yourself. By educating yourself, by taking control of your money, you become the person most qualified to give yourself financial advice. This is an exhilarating experience.
Even if you follow all of Stern’s advice, you will make money mistakes from time-to-time. But by educating yourself, and by trusting yourself to take charge of your financial life, you put yourself in a position where those who make the big mistakes are subsidizing you instead of the opposite.
[Reuters: Correcting your money mistakes]
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