1. Buying more house than needed.
In the last 45 years, the average square footage of a home has increased by 1,000 square feet. Yes, you read that correctly. Even as family sizes have shrunk and the storage locker industry has grown, we still have homes getting larger and larger. The average house size is now approaching 3,000 sq. feet. Who on Earth needs a house this size that is not the Brady Bunch? It is smarter to buy for what you need, rather than what impresses the Joneses.
2. Carrying over credit card debt.
This is just idiotic. You signed up for a credit card whose sole purpose is to wish and pray that you don't pay them back on time. Much like casinos, the house always wins. If there wasn't more money being created in interest from people carrying over their balance than there is with people cashing in rewards then credit card companies would go out of business. However, they are doing so well that their names are attached to bowl games, stadiums and they have national advertising campaigns. Pay off your card in full every month AND cash in the rewards. You can win in this relationship. I make about $30-$40/month by paying my card in full and cashing in the rewards.
3. Buying a new car as soon as the previous one is paid off.
The notion that you should always have a car payment is frankly dumb. The goal should be to get the type of car that best fits your habits and pay as little as possible for it. If you're someone that commutes a long-distance and don't own a camper/boat/trailer/contractor business there is no reason to own a large truck. They have bad gas mileage and are expensive to maintain.
There is also no reason to own a luxury automobile. In what scenario in your life will you need to have the difference between a 250 horsepower engine and a 400 horsepower engine? The up-front cost is greater and the service of the car costs more than a more common make and model.
Get your car paid off as soon as possible with little or no interest on the initial cost of the vehicle. You should be buying a car for the decade, not for the three year window. Enjoy a nice 4-6 years of not having a car payment to build up funds. This is money that you can stash away in a retirement account, investment account, high-interest online savings account or towards chopping down other debt.
4. Buying the same item over and over again.
It is incredible to me that people will buy the same cheap item over and over again. My example is camping chairs. Let's say Chair A is a cheap version that lasts 3 years, but can be bought for $15. What if you could get a better chair (Chair B) for $40 and have it last you 12 years? If you use a chair 100 times a year you would pay about $0.05 per use for Chair A and $0.03 for Chair B.
5. Not having a long-term financial plan and assuming it will all work out.
This is a bunch of wishful thinking often by people that spend just as much or more than what came in. Things will eventually work out in the end they say. This isn't the 1970's when pensions were everywhere and you knew you were going to get social security once you hit the eligibility years. We live in a 401K and questionable for social security in 2050 world.
With that said you need to be thinking long-term and paying yourself first in the form of first contributing to a retirement account. At the very minimum you should take the maximum company match of your employer, because it is free money.
A good goal to have in your retirement account is:
By age 30: At least the equivalent of your gross salary
By age 35: At least 2x your salary
By age 40: 3x
Age 45: 4x
Age 50: 5x
Age 55: 6x
Age 60: 7x
The most challenge part of this will be the age 30 and 35 years levels. What is good is that you will have compounding interest from your investments working right along with you. It is reasonable to expect an account filled with index funds to have a 6-8% annual growth before you even contribute. Stick to the chart above and you should be able to retire comfortably. Also notice how I didn't say your annual expenses, but your gross salary. Financially responsible people tend to live well below their means, so that pot of money will carry you quite a ways.
6. Taking out loans for liabilities.
Boats, vacation homes, diamond rings, vacations, four-wheelers...all have bad return on investments. These items can be fun, but they also tend to be a financial sinkholes. What makes matters worse is taking out a loan to buy them. That just adds lighter fluid to the flame in the form of interest on the principle. As the saying goes, "If you can't afford five of them, you can't buy one of them."
7. Not having an emergency fund.
This rings loud particularly now when so many people are out of work. In my particular industry (tourism) the number is around 50% of workers being out of a job. With that said having an emergency fund should be your #1 priority after making sure your most basic bills are paid for. What is recommended is anywhere from 3-6x your monthly expenses. I personally have a nest egg of about six months of expenses. This fund should only be used to cover expenses from lack of income or real emergencies such as medical bills or a fire burning down your house.
About the Author
Andy Rupert is a Penn State (B.A. John Curley Center for Sports Journalism 08') and a Southern Miss (M.S. Sport Management 09'). He has spent his whole career working in sports and tourism digital marketing and metrics.