9 Financial Moves You Will Always Regret


We all do dumb stuff with our money, especially when we're young. Most of the time, we make mistakes that won't cripple us in the long run. But there are a handful of bad financial moves that almost always come out negative.

Nobody's perfect, but if you avoid these mistakes, you'll probably be in good shape, money-wise.

1. Failing to Invest When You're Young

If you've read Wise Bread long enough, you should know about the power of compounding investment returns. This is the notion that the earlier you invest, the better off you'll be financially because your investments will have time to grow. A $500 per month investment from age 45 to 60 will grow to about $161,000, assuming a 7% annual return. But if you start at age 30, it would represent $606,000. And if you started at age 20? $1.28 million.

2. Buying a House You Can't Afford

There are many reasons why the economy and stock market took a dive in 2007 and 2008, but one of the main culprits was the subprime mortgage crisis, which stemmed from a flurry of people who purchased expensive homes with unfavorable loan terms. People bought homes with little or no money down, with mortgage payments that began high and only got higher. This led to a massive number of foreclosures, as homeowners were left unable to make payments.

Banks these days try to avoid lending to anyone who would have to pay more than 28% of their net income each month toward the mortgage. Lenders are also reluctant to provide home loans to those who would have an overall debt-to-income ratio of 43% or more. If you find that you may be exceeding these limits, it's likely that you are stretching yourself too thin and are putting yourself at risk of foreclosure, and possibly bankruptcy.

3. Racking Up Credit Card Debt

Debt stinks, and credit card debt may be the worst kind. That's because credit card interest rates tend to be so high that's hard to make a dent in what you owe. An interest rate on a credit card is at least 11% even for low-interest cards, according to Bankrate.com. That means that for every $100 you owe, you're paying an additional $11 annually. These extra payments then make it harder for you to save for other important things, and to make matters worse, high debt hurts your credit score, and a bad credit score affects your ability to get things like a home loan. So in summary, credit card debt can lead to an endless spiral of despair.

Take heart, however. It's possible to avoid credit card debt by living within your means and paying off all credit card balances in full each month. If you do end up with credit card debt, focus on paying off credit cards with the highest interest rates first, then work your way down.

4. Choosing a College Based on Price

There is an assumption by some parents and students that the most expensive schools are also the best. And that's one of the reasons why members of the Class of 2015 exited with an average of $35,000 in student loan debt.

While it's true that many of the top schools are quite pricey, it's best to evaluate colleges on overall value, not cost. This means taking into account not just the price, but also the quality of the education and the likelihood of landing a well-paying job after graduation. (Because a good job will help you pay off those student loans.)

There's also a growing acceptance of community college as an option for students. Community colleges will offer a low-cost place for students to take the foundational classes that are common among freshmen and sophomores before going off to a major university to complete their degree.

Student loan debt is often referred to as "good" debt, but it's horribly crippling to millions of young people. Worst of all, it can't be discharged in bankruptcy, so failing to make student loan payments can haunt a student for years after graduation.

5. Cosigning a Loan With an Untrustworthy Person

At one point or another, many people are approached with a request to cosign a loan. Often it's from a friend or relative who would not otherwise be able to obtain the loan on their own. Generally speaking, you should almost always say no to these requests. That's because cosigning the loan makes you responsible for paying the loan back if the other person fails to make payments. This can lead to financial hardship for you and hurt your credit score.

If you have a loved one in need of assistance, you're almost always better off just lending or giving them money directly, or finding some other less risky way to help.

6. Ignoring Your Company's 401K Match

You may think that as long as you put some money into your company's retirement plan, you're doing fine. But are you maximizing the money you could be getting from enrolling?

Most companies will match contributions up to a certain percentage of your pre-tax income. Usually, this means matching up to 5% of your salary, and some companies match even more. So if you're not contributing up to this level, you're leaving free money on the table. Over time, this could add up to tens of thousands of dollars missing from your retirement account.

If you are unclear about how much to put into your 401K, make sure you at least put in enough to get the full company match. Even an additional 1% or so from your employer can make a huge difference in the size of your retirement fund later.

7. Not Buying Health Insurance

If you are young, you may feel like health insurance is a waste of money. You have no illness, you work out, you eat right. But ask about the young guy who got into a severe car accident, or tore a ligament in a pickup soccer game. No one is invincible, and 62% of all bankruptcies stem from from medical expenses, according to a 2007 Harvard Study.

There's even less of an excuse to avoid health insurance now that there are reasonably priced plans available on state and federal health exchanges.

8. Defaulting on a Loan

You may find yourself in a situation where debt seems so overwhelming you decide to stop making payments altogether. You should avoid this temptation and keep making payments, even if they are the minimum.

Quite simply, if you fail to pay a debt, it will show up as a negative event on your credit reports, and will thus impact your ability to get favorable loan terms in the future. Failing to pay a debt often leads to calls from collection agencies, and you could even be sued. If you lose a judgement, you may have your wages garnished. If you find that you owe too much, you may be able to file for bankruptcy as a last resort. But that won't help you avoid debt from student loans, which can remain on a credit report for seven years and are not discharged in bankruptcy.

9. Failing to Pay Taxes

You may hate the Internal Revenue Service, but the agency does not care about your feelings. If you owe taxes, you are expected to pay them, and there are penalties for dodging the tax man. You'll be penalized 5% of what you owe for each month your taxes are late.

The IRS advises that you're better off filing a return and paying some taxes, even if it's not the full amount. A "failure-to-file" penalty is usually higher than a "failure-to-pay" penalty, the agency says, and it will work with you on an installment plan if you can't pay a tax bill in full right away.

Paying your taxes late doesn't usually hurt your credit score, but if you pay nothing to the IRS, you may be subjected to a federal tax lien, which would show up on credit reports.

Have you made these — or other — financial moves you later regretted?

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