Smart About Money: Mistake That Everyone Makes

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First, let’s define what we mean by a “money mistake.”

There are events no one can anticipate or fully prepare for — a life-changing tragedy, a major economic catastrophe like the Great Depression, even lesser economic disruptions, like the current Federal Reserve policy of holding down interest rates (which is hurting many seniors) or a housing bubble bursting.

The best people can do after those kinds of events is react, adapt, and pick up the pieces.

Then there are money mistakes.

Money mistakes usually center on decisions people regret — things they later think they should have seen coming or done differently.

Money mistakes come in every flavor, because money is complicated. There are lots of ways to go wrong, and everyone does go wrong every now and again.

Basically, it seems to me that people’s big money mistakes all boil down to one thing: Making an important financial decision without taking all of the options and repercussions into consideration.

Two quick examples: A businessman recently had his book published by a big-name publisher — a dream come true for him. But now he’s complaining that his “pittance” in royalties barely pays for a coffee a day.

A writer in the same industry who has self-published several books blogged that he doesn’t get the prestigious publisher glow, but his books are a profitable “hobby” that buy him a couple of nice vacations every year.

The mistake the businessman made? Not being completely clear with what he wanted from his book. If it was glitz, he got it. If it was money, there were other routes he could have considered and taken.

Speaking of coffee, many people say they can’t afford to contribute to their 401k plan or that they don’t understand what a 401k can do for them long-term.

Plenty of those same people can (and do) spend on treats like fancy coffees and eating out, which is fine, except that with pensions becoming a thing of the past and Social Security a question mark for younger workers, the handwriting is absolutely on the wall. People are going to have to fund their own retirement.

Missing out on long-term, compound-interest savings — that’s a money mistake! And not adding enough to a 401k plan to earn an employer’s matching funds — that’s walking away from free money! A definite money mistake!

Maybe the right thing to do in these situations seems obvious to you, but everyone has blind spots, especially around money. Today people have more opportunities than ever before, which is great. But they often have to make complicated financial decisions on their own with many options to choose from. How to avoid mistakes?

You could use the old debate team trick: be able to make the case for and against your plan. Or write down three pros and three cons. Talk with friends, co-workers and professionals, and learn from their experience if you can. That’s a real (and often free) shortcut to making money decisions you will be delighted with.

Nick Maffeo is the senior vice president, chief financial officer and treasurer at the Canton Co-operative Bank in Canton. Have a question? Email to submissions@thecantoncitizen.com.

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avatar Posted by on Jun 13 2012. Filed under Featured Content, Opinion, Smart About Money. Both comments and pings are currently closed.
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