Everybody makes mistakes, but they’re particularly painful when they cost you hard-earned cash.
Nobody is perfect when it comes to handling finances. But even if errors are inevitable, there is no reason to waste hundreds or even thousands of dollars on financial moves that are proven folly.
Here are eight common financial fouls you can avoid just by exercising a little thought and a lot of prudence.
1. Borrowing to buy depreciating assets
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Problem: Your IOU becomes an OMG when a purchase loses value. That’s why the past housing crisis was so devastating to many families. Everybody who was suddenly left with an underwater mortgage — meaning they owed more than their homes were worth — learned this the hard way.
How to avoid it: Homes typically increase in value, although that’s not always true, as the Great Recession reminded us. Meanwhile, just about everything else loses value after you purchase it. Borrowing money to buy things that decrease in value — like cars — simply compounds the loss.
Ideally, credit should be used to buy only those few things that generally increase in value: a house, an education and maybe a business. If you’ve already dug yourself into a hole, check out “How to Pay off $10,000 in Debt Without Breaking a Sweat.” And if you want to buy those nice things without credit, try “Ways to Make Your Savings Grow Faster Automatically.”
2. Buying a new car
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Problem: As soon as you leave a dealer’s lot with a shiny new car, it depreciates 10 percent, according to Carfax. And by the end of your first year of ownership, it will have depreciated another 10 percent. So a new car that costs you $30,000 is worth only $27,000 by the time you get it home and $24,300 one year later.
Registration and insurance are also more costly for new cars.
How to avoid it: For starters, buy used. To get a good deal, remember that there is something of an art to finding a great used car. Check out “It’s a Great Time to Buy a Used Car — Just Take These 5 Steps First.”
3. Saving while in debt
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Problem: Savings provide a sense of security. But if you pay more interest on your debt than you earn on your savings, you’re going backward.
One possible exception could be debt that comes with a tax benefit, such as mortgage interest or some student loans.
How to avoid it: As a rule of thumb, use low-interest savings to pay off high-interest debt. Otherwise, you will gradually reduce your net worth.
Just don’t sacrifice peace of mind. If you’re in danger of being laid off or you anticipate a big expense on the horizon, retaining cash helps you sleep at night.
4. Buying name brands
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Problem: In some cases, name brands are worth the extra cost. But in other situations, brand names are no better than alternatives that can be purchased at a much lower price.
How to avoid it: Don’t pay for a popular brand’s advertising budget. When things are worth the extra money, pay it. But for many items — such as prescription drugs, salt and sugar, and many cleaning supplies — the generic is identical to the branded product.
5. Ignoring your credit
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Problem: A good credit score is important because it affects loan interest rates, insurance rates, credit offers and even job offers. Yet many people don’t even bother to keep track of their score.
How to avoid it: Understand the true cost of bad credit, and take steps to improve yours. Take a few minutes today, and get a free copy of your credit report at . If your credit score is poor, study up on how to boost it.
6. Not asking for a better deal
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Problem: When confronting a major expense, the asking price doesn’t have to be the price you pay. From doctor bills to credit card interest rates, the way to get a better deal is often as easy as asking.
How to avoid it: Always ask for a better deal. For ideas on how to haggle and get better deals across the board, check out “15 Ways to Never Pay Full Price for Anything.” There are almost always ways to get a better deal, whether you’re shopping for vacation lodging or haircuts.
7. Paying someone else to do what you can do yourself
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Problem: Labor is often the most expensive part of home repairs and maintenance. Do you really want to pay the price for gardening, painting, car washing, mowing and cleaning?
How to avoid it: Save that money by doing many tasks yourself. In the process, you’ll gain the satisfaction of self-reliance.
You may decide some DIY projects — like making your own laundry detergent or growing your own vegetables — are satisfying and worth the savings. On the flip side, consider that sometimes backing away from DIY projects will save money or avoid injury.
8. Blowing tax refunds
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Problem: Many Americans receive thousands of dollars in tax refunds each year. And many either blow this money all at once or fritter it away.
How to avoid it: Remember that a tax refund is money you overpaid to Uncle Sam. It was your money when the IRS had it, and it is your money when you have it back in hand. Use it to pay down high-interest debt or any of the other options in “Tax Hacks 2017 — 9 Smart Ways to Spend Your Tax Refund.” Don’t squander it like lottery winnings.
If you are getting a large refund, to adjust what you are having withheld throughout the year. Get as close as you can to what you actually owe, because that refund is really not a bonus — it’s just money that you could have used better if it had been in your pocket during the course of the year.
We’d love to hear about your financial fouls, too. Share them in the comments or on .