Some financial decisions are no big deal, even if you make the wrong choice. Buying an expensive dress may not be good for your finances, but that one-time purchase is unlikely to wreck your financial life.
Not so with other financial decisions. Some financial blunders are so bad and so dangerous that it might be impossible to recover. Here are five of the worst financial decisions you can make – decisions that could have long lasting and even lifelong repercussions on your career, your earning power and your ability to retire comfortably.
#1. Borrowing from Your 401(k)
Many workers think that borrowing from their 401(k) plans is no big deal. After all, they say, I am paying the money back to myself, so there is nothing to lose.
Nothing could be further from the truth, and borrowing from your 401(k) could be one of the biggest financial mistakes you ever make. When you borrow from your 401(k), you will likely lose the ability to put money aside until the debt is paid off. That could mean years of lost opportunity and a retirement nest egg that is much smaller than it otherwise would be.
Perhaps most dangerous of all, if you lose your job you could be required to pay back the outstanding loan balance right away. That is a huge financial hit right when you can afford it least. No matter how dire your financial circumstances, raiding your 401(k) balance should be a last resort.
#2. Repeatedly Bailing Out Your Adult Kids
Everyone can make a mistake, and there is nothing wrong with bailing out your kids in times of trouble – if you can afford it. But repeatedly bailing out your kids even when they show no inclination to change their ways is a bad idea, and it can put your own retirement at risk.
Remember, your kids can borrow money to pay off credit card debt, go to school or finance a dream wedding. You, on the other hand, cannot borrow to finance your retirement. Learning to say no is perhaps the hardest thing a parent can do, but it is also one of the most important.
#3. Claiming Social Security Too Early
You can start claiming your Social Security benefits at age 62, but that does not mean you should. Delaying the start of your Social Security benefits means a larger check – not just now but decades into the future.
Keep in mind that Social Security is one of the few remaining programs that is indexed for inflation, so giving up that larger payment is even more of a big deal. If you cannot retire without claiming benefits at 62, you might want to work a few years longer and beef up your other savings.
#4. Paying the Minimum on Your Credit Cards
Racking up a lot of credit card debt is one of the biggest financial blunders you can make, and paying the minimum on those credit cards will only make the problem worse. Every month you pay the minimum is one more month interest charges are accruing. That means you are just digging the hole deeper, and it could take you decades to work your way out.
If you find yourself in a credit card hole, the first thing you need to do is stop digging. Cut up the cards or put them away and put every extra penny you can toward paying off the balances. Your credit card debt should be a priority, so be sure to treat it that way.
#5. Neglecting Your Education
You probably already know that quitting high school will be deadly to your future finances and lifetime earning power, but dropping out of college can be almost as dangerous. Neglecting your education is a big financial mistake, and the implications could follow you throughout your career.
Continuing your education can be good for your career, so much so that your employer may be willing to pick up the tab. Ask about tuition reimbursement programs and look for part-time learning opportunities that can advance your career at little to no cost to you. Thanks to the Internet and distance learning, there have never been more ways to get the education you need.
No matter who you are or how much you earn, avoiding financial blunders is essential to your long-term well being. When it comes to your finances, sometimes what you don’t do is even more important than what you do. Avoiding the five mistakes listed above can help you make the most of your finances and enjoy a more successful career. +