We all know people who can’t seem to make any good financial decisions – ever. We all make bad ones occasionally. I know I have made my fair share of shaky ones. When you are in the moment, making the decision, it most likely seems to be the best. It is only later that you think about other options that could have been available and which you may have chosen. Train yourself to think through available options and their consequences before making that decision. You will get better at good financial decision making.
Here are 6 decisions I have seen people close to me make, that turned out to be v-e-r-y wrong.
Living above your means.
Spending more than your income provides seems to be a common condition in America. It is so easy to incur debt and keep deferring payment. That path leads to financial failure for most. Lifestyle changes are easy to make on the way up, harder to swallow on the way down.
A relative of mine gradually lost income and assets over a 20 year period, having lifestyle downsizing forced on him multiple times and in multiple ways, from loss of cars all the way to loss of hot water for showering and money for food. Planning ahead to project your needs is important. Once you plan what you need you can start figuring out how to fill that need.
Not cashing that check from your mutual fund company.
A hoarder I once visited left uncashed mutual fund dividend checks laying around on the already littered living room floor. Granted, they were for very small amounts – such as $1.25, but not cashing them had big consequences. The mutual fund company, after several attempts to contact him, was required by law to escheat the assets in the fund to the state as ‘lost’ money. The hoarder subsequently tried to reclaim the money, but was unable (or perhaps the better word is unwilling) to satisfy the state’s requirements to do so. Tend to your affairs to keep them humming properly and avoid complications.
Not paying your real estate taxes.
An acquaintance of mine inherited a 4 bedroom/2 bath home free and clear of any debt. This person lived in the house for many years, enjoying it along with the money he inherited from the same person. He refused to get a job, find a roommate or develop any source of income. Eventually he could not pay the real estate taxes and the home was put on the county’s tax lien sale auction. He ended up losing the home for want of a few thousand dollars. Remember that what is yours, really isn’t. If you don’t pay the taxes, you lose.
Waiting for a job to come to you.
A friend of a cousin was laid off back in the 1990’s. She wouldn’t go out and find a new job. If one came to her (which surprisingly one did – twice), she would work at it halfheartedly and eventually lose the opportunity. Opportunities abound, you just have to tune in to them and seek them out. “All things come to he who waits (and worketh like hell while he waits)”.
Giving away money you need to survive.
Generosity is a fine thing, but the old adage “Charity begins at home” is very appropriate for some. I know a person that gave away so much money that she is now destitute and using food banks to live. Take care of yourself first and you can help others much more and for longer periods of time.
Not being ready to make changes.
In 2012, Ramit of I will teach you to be rich, posted “Who do you know that consistently makes the worst financial decisions?” One reader commented:
“From experience, I’ve found that all my financial issues had roots in something psychological going on inside of me – so until I cleared that up, I was NOT going to listen to anyone else or even admit I had a problem.”
With a certain relative of mine, I have offered suggestion after suggestion on ways to live within her means, to get income or to deal with issues – all ignored or twisted wrongly. She is not ready to make changes or get help. Until she is, nothing I say or do will help her. It is truly frustrating and stressful for the people who care about you to watch as you go downhill and get yourself into trouble. Get help.
What financial decisions have you seen that turned out to be oh so very wrong?
The Worst Financial Decisions I’ve Seen — 18 Comments
My mom has a good friend before, when somebody asked her for a donation she really gave a donation immediately without hesitations. And now I heard that the woman was in a desperate position she already sold her house and moved into a smaller one.
Giving is part of human society – probably bio engineered into us – being part of a group and etc, but if you take care of your own and your family needs first, you are in a much better position to help others – as your Mom’s friend has probably discovered.
I take too long to make important decisions. I stayed in a secure but low paying job for too long because I was afraid to take a chance and I did not believe in my own ability.
I know someone like that too, but it turned out ok for them. We all have different levels of risk tolerance and sometimes you just have to work things out so that you can live within yours.
Not being to make changes is a big one for me…..I can recognize that some of my decisions are not the best for my finances, but I keep making the same bad choices because that’s what we’ve always done. Hopefully your post will be the kick in the pants I need to make some changes. 🙂
I agree with you especially on the first one, living above your means. I’ve seen people who ended up drowning in debt because they spend more than they earn, buying things they don’t really need.
We have a friend who worked as a banker. He had a nice house in the city, his wife had a top notch apartment 200 meters away from the house, in a nice block and also an old really well maintained house in a nearby mountain area.
He wanted to move into the suburbs and was also spending like crazy. In 3 years he lost his wife’s apartment and the holiday house (the only house left is not his entirely, I’m sure he’d have lost it too). Now he has a new house in the suburbs and still a mountain of debt. We’re all shocked at how this went sooo wrong ..
I have a relative who has had a hard time finding work after the Great Recession. He started his own electronic switching panel company making panels with high-power switches for small power stations. He was selling his panels to someone in Washington state. After working at that for a few years he decided to move to Washington, so he bought a fixer-upper house. Trouble is, his wife and kids didn’t want to move to Washington. His wife makes more money than him in California. He is now working to flip the house in Washington. Working on a house a thousand miles from where you live is not easy. I have my fingers crossed that he can sell the house without losing too much money.
Maybe I’m naive but I don’t understand how some people make these mistakes. I understand that sometimes you lose a job or there are unexpected costs that come up but when you can’t live below your means when you have regular income and regular expenses, it’s a recipe for disaster.
I remember heading about that professional sports coach (or athlete?) that lost their mega-mansion over a few grand in taxes as well. That’s just crazy. I guess it all goes back to what you mention in the part about not cashing your mutual funds checks… you have to handle your affairs to keep things humming along.
We all know people who can’t seem to make any good financial decisions – ever. We all make bad ones occasionally. I know I have made my fair share of shaky ones. When you are in the moment, making the decision, it most likely seems to be the best. It is only later that you think about other options that could have been available and which you may have chosen. Train yourself to think through available options and their consequences before making that decision. You will get better at good financial decision making.
My mom has a good friend before, when somebody asked her for a donation she really gave a donation immediately without hesitations. And now I heard that the woman was in a desperate position she already sold her house and moved into a smaller one.
Giving is part of human society – probably bio engineered into us – being part of a group and etc, but if you take care of your own and your family needs first, you are in a much better position to help others – as your Mom’s friend has probably discovered.
I take too long to make important decisions. I stayed in a secure but low paying job for too long because I was afraid to take a chance and I did not believe in my own ability.
I know someone like that too, but it turned out ok for them. We all have different levels of risk tolerance and sometimes you just have to work things out so that you can live within yours.
Not being to make changes is a big one for me…..I can recognize that some of my decisions are not the best for my finances, but I keep making the same bad choices because that’s what we’ve always done. Hopefully your post will be the kick in the pants I need to make some changes. 🙂
I agree with you especially on the first one, living above your means. I’ve seen people who ended up drowning in debt because they spend more than they earn, buying things they don’t really need.
It’s a shame really.
We have a friend who worked as a banker. He had a nice house in the city, his wife had a top notch apartment 200 meters away from the house, in a nice block and also an old really well maintained house in a nearby mountain area.
He wanted to move into the suburbs and was also spending like crazy. In 3 years he lost his wife’s apartment and the holiday house (the only house left is not his entirely, I’m sure he’d have lost it too). Now he has a new house in the suburbs and still a mountain of debt. We’re all shocked at how this went sooo wrong ..
That is a lot of houses to lose.
I have a relative who has had a hard time finding work after the Great Recession. He started his own electronic switching panel company making panels with high-power switches for small power stations. He was selling his panels to someone in Washington state. After working at that for a few years he decided to move to Washington, so he bought a fixer-upper house. Trouble is, his wife and kids didn’t want to move to Washington. His wife makes more money than him in California. He is now working to flip the house in Washington. Working on a house a thousand miles from where you live is not easy. I have my fingers crossed that he can sell the house without losing too much money.
Crossing my fingers for him too!
Maybe I’m naive but I don’t understand how some people make these mistakes. I understand that sometimes you lose a job or there are unexpected costs that come up but when you can’t live below your means when you have regular income and regular expenses, it’s a recipe for disaster.
I don’t really get it either, but I have certainly seen these in action. It is a very different mindset than I have!
Fear of investing. People lost a lot of market and cashed out, which is unfortunate as they will never recover.
Oh so true. I did plug more money into the market in late ’08, but wish I had done so much more.
Hopefully that is true.
I remember heading about that professional sports coach (or athlete?) that lost their mega-mansion over a few grand in taxes as well. That’s just crazy. I guess it all goes back to what you mention in the part about not cashing your mutual funds checks… you have to handle your affairs to keep things humming along.
Really? I hadn’t heard about that one. Probably had the money to pay but just neglected to do it.