Assuming you haven't been under a rock for the last 10 years, I'm fairly certain that you don't need me to tell you the obvious. So, I am not going to mention the common advice of choosing credit cards, reducing debt, setting a budget, or managing cash.
What I want to try to do here is get into some of the lesser known (or lesser practiced) mistakes that a ton of people make and soon or later regret. To me, these are the things that fly under the radar either because, "We're so busy" or because we have a hundred other excuses that allow a never ending justification for our inaction.
If that intro didn't make you feel at least a little guilty, read on. At some point you'll identify something you've been ignoring.
A recent tally of the junk that I have allowed to accumulate at home has me thinking. When was the last time I actually sat and read a Maxim, Business Week, or People magazine? In the past, I admittedly would read these in the bathroom. However, now I use that time to study my Blackberry to read the email that I have relegated to my "To Read Later" folder.
How about HBO? Why do I have a subscription to HBO when the only show I watch is Entourage? Can't I just rent the entire season at Blockbuster for $4 versus the $15 per month I am paying now?
It's so easy to subscribe to these novelties when you are in a spending mood. In many cases, it's just a few simple mouse clicks. Like many decisions, their ramifications last a lot longer than the time it take to make them.
I don't and won't want to recommend that you give up things you truly enjoy. I will however ask that you consider the things you're subscribed to today. Are you still as excited about the purchase as you were on the day you signed up? If not, ask whether you really need the item in your life or if you are willing to continue paying the monthly or annual fee. Remember, this is more than magazines and cable TV. Consider gym memberships, website forum memberships, cell phone data plans, the Wifi card subscription you don't need at Starbucks anymore, etc.
The Power Purchase
My wife and I are friends with another family that is (in my opinion) on the verge of losing their home to foreclosure. They have never told us this directly but we know their income and we know their mortgage bill. The numbers simply don't add up and we feel they are now using credit cards to keep the mortgage paid.
What makes this situation worse is that this couple insists on acting as if nothing's wrong. They fly to exotic locations for vacation, they buy the fanciest washer and dryer on the market, drive a BMW, and several times each month, they blow money entertaining neighbors and co-workers. It's almost painful to watch.
These crazy purchases all deal with pride. This couple is so concerned with their persona and community clout that they are literally putting their future and the futures of their kids in jeopardy. To this day, they don't maintain a functional budget. I just don't get it.
I agree with your inevitable thoughts; this is an extreme case of irresponsible spending. However, I'd challenge you to consider your reasoning behind every purchase that you make over $50. At $50, you can catch a lot of mistakes. That's when a pair of jeans is no longer just a pair of jeans, it's a designer pair of jeans. $50 is when you're paying for the name on the shoes, not the shoes. If you need motivation to do this, create a goal or a savings account that you can send that $50 to. You may not get the jeans but you're $50 closer to being able to pay cash for that vacation, college tuition, etc.
I want to be loud and clear here. If you are 20 years old today, you WILL wake up tomorrow and be 35. My father used to always tell me this and I'd scoff in the same way you just did. But - I kid you not, time is a crazy thing. Yesterday I was drinking with my friends 6 days a week, today I have a daughter that just started kindergarten and a 2-year old son that loves Brian Urlacher (as well he should).
If there is one thing you get out of this article it's this: Whatever you are saving, it's not enough. I am not going to go into a huge diatribe here. If you work at a company with a 401k, contribute as much as you can. As a rule, you should at least be contributing up to the amount that the company matches. However, add more and contribute more if you can.
If you are a freelancer or work somewhere with no 401k, setup an automatic withdrawal that goes into a savings account not attached to your checking account. If your income level allows for it, put some cash into a Roth IRA, etc.
The key is to start NOW. If you make a million later in life or inherit a truckload of cash, do what you want, but don't skip savings today in anticipation of that! That's a nice segue to...
I hate to say this but you are the only person watching out for you. Whether you are relying on an inheritance from Daddy or banking on your $1,300 Social Security check, you are simply a fool to assume that it's headed your way.
In line with everything that I've mentioned thus far, you have to plan your finances in a way that will all but guarantee your needs are met. If you do get a windfall or if Social Security exists in five years, you need to treat that as a bonus. You can NOT rely on anything that you don't personally control.
I would wither up and die if I didn't have my wife's constant support so thankfully, I don't have this particular issue to contend with. However, getting married for the wrong reasons can and will cost you dearly. In the past I've thoroughly explained some points to consider before getting married and to this day, I stand behind them 100%.
Divorces are messy; my parents are divorced. The process can become an emotional and financial roller coaster that seemingly begins and ends with the rider's car flying off the rail. The key is that you never know it's coming.
Treat your relationship with unprecedented respect. Consideration, compromise, trust, etc. You get the point - don't get married on a whim.
Letting Schools Teach your Kids about Finance
Um, Houston, we have a problem; my kid is 16 and has no idea how to handle money.
Listen, our schools have major issues and we all know it. One of these huge problems is that there is absolutely zero education on personal finance. If Mommy didn't open a savings account for you when you were 6, you'd have nothing and you may have never even been in a bank.
Knowing this, parents, aunts, uncles, and anyone that cares, needs to teach kids about money. I am not talking about 'saving is good', I am talking about some good knowledge of how credit works, what debt is, how debt hurts you, what investments are, etc. If YOU don't teach your kids these basic principles, you are severely handicapping them.
Do more than give your kid an allowance for mowing the lawn; teach them how to turn that $10 into $12. Not doing so may put you in a never ending spiral of bailing them out of credit card debt.
As I mentioned, there are loads of 'gurus' out there and there are thousands of tips. However, at some point it becomes paralysis by analysis so you do nothing. When it comes to money, have a handful of guiding principles and live by them. Doing so thoroughly will help with the micro issues like impulse purchasing, etc.