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We all make mistakes with our money. Sometimes we get suckered into “buying more to save more” or we buy something we really don’t need because of how low the price is. In both of these cases, the mistake is not a large financial mistake. Instead we chalk it up as the price of a learning experience. But there are a handful of mistakes that we make with our money that has a long-term impact on our future. Five in particular include Co-Signing a Loan, Buying Too Big of a House, Taking Out Too Many Student Loans, Focusing on Monthly Payment and Not Price, and Going Into Debt for Your Wedding.
Co-Signing a Loan
There are some instances when co-signing a loan makes sense, such as buying a house with your spouse. But for the most part, co-signing a loan leads to nothing but trouble. Understand the many times, the lender is requiring a co-signer because they don’t feel comfortable providing a loan to them. They fear that they will not be repaid and as a result needs someone else on the loan they can go after to collect their money.
The fact that the bank is concerned about getting repaid should be a red flag to you. If you do co-sign a loan, you are liable to repay that debt. In addition, if the primary borrower is late or begins to miss payments, your credit score can be negatively affected. This will make it harder for you to take out a loan or could even spike your credit card interest rates.
Buying Too Big of a House
Buying too big of a house can set you back decades in the savings game. In terms of the price of the house, I bought too big of a house. It was completely my fault as I let my real estate agent talk me into it. As a result, I was living paycheck to paycheck. This takes into the account that I had a roommate to help offset some of the costs. Luckily with some side income, I was able to keep my head above water. But for many, they are not so lucky. They miss payments and ruin their credit and eventually their home.
Added to that, they will not be able to save as much as they should be for retirement. The result could be having to delay retirement.
Even if you can afford your monthly payment, buying a large house could also hurt you financially. The more rooms you have, the more rooms you have to fill with stuff. You aren’t going to let four rooms go completely empty. You will paint them then decide to turn one into a home gym and the others into separate offices. Buying all of that stuff could put you into credit card debt or reduce the amount you can save for retirement.
Taking Out Too Many Student Loans
I am a big proponent of going to college. You learn so much both in and out of the classroom. I grew so much as a person due to the social interactions I went through. But you should not be taking out unnecessary amounts of debt just to go to college. Be aware of how much your monthly payment will be once you graduate based on the amount you are looking to borrow. Then look at what you can expect to earn once you graduate. This isn’t saying look at what you think you will earn. Do some research to determine the salary for your degree. That should give you a good idea of when you are taking on too much debt.
If taking on loans is your only option, become creative: go to a local community college for the first two years to save money and work during that time as well. When in college, look into part time jobs to help offset the cost. You can read countless articles currently about recent grads having so much debt they can barely get by. Learn from their mistakes and don’t repeat them.
Focusing on The Monthly Payment Instead of The Price
When buying a car, the salesman is gong to ask you “How much can you afford each month?” If you answer that question, you already lost. By placing the focus on the monthly payment, they can get you to over spend on the car as a whole. The finance guys in the back can make the math work so that you only pay $200 per month on that $50,000 car. You may have to take out a seven year loan and pay more in interest than the car is worth, but you wouldn’t know because you are focusing on the $200.
Make sure you focus on the overall cost of the car. If it turns out that once you reach an agreement on this price you cannot afford the monthly payment. That means you cannot afford the car. Save up more for a down payment or look for a lower priced car.
The same can be said for buying a home. It’s easy to look at the monthly mortgage and think you can afford it, but look at the overall cost of the house, including interest. Think of how you could use that money in other ways. This isn’t to say not to buy a house, but be realistic.
Going Into Debt for a Wedding
I might take some heat from the ladies out there but it needs to be said: there is no reason you should be going into loads of debt for your wedding. Yes it is a special day. But based on what others have told me, they really don’t remember all of it. Get it into your head that everything isn’t going to be perfect. Things will most likely go wrong. Accept that. Focus on the experience you will have and not on finding the most amazing dress in the world. You aren’t ever going to wear it again.
Here is an even better reason: money is the main cause of most divorces. If you go into debt for the wedding, you are increasing your odds of divorce. Money will be tighter as you are trying to pay off your debt and fighting and bickering will ensue. Why jeopardize your marriage right from the start? It is the same thing as me showing up late on the first day at a new job, taking a two-hour lunch and leaving early. Have an incredible wedding, but realize what is important and what is not. If you step back and really look at things, you should be able to separate the two.
These are just a handful of things that can have a long lasting negative impact on your finances. Hopefully, most of you have not run into any of them and can let this be your warning to avoid them. If you have experienced any of the above, do you agree or disagree? Are there any other ways you can screw up your finances big time?
Jon writes for MoneySmartGuides , a personal finance blog that aims to teach the basics of personal finance with a focus on investing and paying off debt. After graduating college and getting into credit card debt, Jon paid the debt off and is working towards a goal of retiring early. He has been employed in the financial services field for over 10 years and currently works as a financial advisor. He recently published two eBooks, Seven Easy Steps to Early Retirement and Spare Change: Adding It Up Can Change Your Life