Common Financial Mistakes to Avoid
Bad investments! We’ve all made them and in a split second, could you name three or four bad investments that come to your mind?
Alright, I will go first!
Note: I haven’t taken out a mortgage or a new car loan. These two, perhaps, would be the logical answers if we were playing the game show “Family Feud”.
Okay, now we’ve identified some bad investments let’s take a look at why these were bad investments.
Student Loans - They put me in debt $20,000 and took me 9 years to pay them off. All things considered, I was lucky to get out of college with only $20,000 in debt. The average college graduate leaves college with $40,000 in student loan debt and it takes them an average of 21 years to pay it off. The upside to student loans, in theory, is that it results in a college degree that should help you achieve higher pay rates down the road.
Penny Stocks - Where to begin? Penny stocks are worth mere cents because they represent companies on the brink of bankruptcy. Basically, you have better odds of going to the casino. I played with fire and got burned. Fortunately, I experimented with penny stocks when I was in my early twenties and had little money to lose.
Motor Scooter - Oh that beautiful, bright red Italian scooter that I spent eight thousand dollars on, but put less than a thousand miles on it and was wrecked twice by my friends who thought it was a toy.
You heard me. All of that backassedry you’ve done to justify making these mistakes - STOP - and think about how you could have done things differently.
The alternative to Student Loans - I should have lived at home, worked part-time and gone to a community college for the first two years of college and then to an in-state university to finish my degree. This path would have minimized my student loans, and I would have left college with a higher GPA.
Alternative to Penny Stocks - Simple! Park your money in Index Funds and leave the buying of individual stocks to the professionals.
The alternative to the Italian Scooter - I could have used the money to pay off my student loans or invest the money in Index Funds.
These are lessons I learned from my bad investments. It’s possible these mistakes led to my desire to learn about personal finance. Hindsight is 20/20. Looking back and analyze our mistakes is easy. Hopefully, we have learned a lesson from our bad investments. Not only is it our responsibility to learn from our mistakes, but it is also our duty to pass on the lessons to others, to the next generation to ensure they don’t fall in the same debt traps.
Be a growth giver; take your knowledge and give it back to someone who needs it.
List your top 3 worst investments
What is the opportunity cost if you had invested that money into an index fund instead?
In the future, think long and hard about your big money decisions and how many hours, days, weeks, months or years you must work to pay off the debt. Then answer the question: Is it worth it?