Contributed by: Matthew E. Chope, CFP®
When it comes to teaching the next generation about money, it’s as important to talk about what NOT to do as it is to teach the right things to do. After working with clients for 25 years I’ve built a list of Things to avoid at all costs!!! The 8 steps below are never a guarantee, but from experience, they are good financial lessons:
8 Things to Avoid:
- Avoid expensive bad debt. Know what something costs and don’t pay for things with expensive interest. Reasonable interest rates in 2015 are 2-4% for a car loan (some are even less!), 3-4% for a mortgage, and 3-6% for school loans (depending on your situation). Credit cards should be used only as a last resort and make sure the rates are less than 10%.
- Don’t take on more debt than necessary. In the case of college loans, you’re likely to be offered more money on loan than you truly need. While it may be tempting to take out money for living expenses and books, finding ways to pay for as much as possible immediately can save you years of repaying debt.
- Don’t be lazy or cheap. Do it now! Make a decision and do it – stop putting things off and being lazy. Also know what the value of things are and pay for them when needed and be reasonable. Share and try to do more for others than yourself at all stages of your life it comes back to you.
- Avoid negative modes of thought. Sentiments like envy, resentment, revenge and self-pity are not productive. These modes of thought will sap the life out of you and derail you from what you should be focused on. If you worry about what someone else has or getting back at someone, you lost already and you’re wasting precious resources that could be better used on yourself and personal improvement. I strongly recommend asking your mentor for help with breaking this cycle.
- Don’t be rude. Though it seems pretty self-explanatory, I once had a business meeting with a colleague at a restaurant and he was very short and rude to the waiter because of the slightest error. After that, I never wanted to do business with him again. Treat people the way you want to be treated.
- Avoid investing in anything that you don't understand. Buy what you know. Invest in products and services that you use and feel work for you in your life because you will feel more confident with your investment. Or break down an investment in a mutual fund to understand what it’s made up of so that when it goes south, you have staying power during the market downturns that will eventually come.
- Don’t cosign for a loan. Should be self-explanatory, but you’re putting your credit on the line if the person you are cosigning for falls short or has any type of trouble.
- Avoid taking a loan from your 401k at all costs. This is silly to do under most circumstances. You actually pay extra tax in this process and rob the forward momentum of the retirement goal to fund another short term want. The equation does not work out well for most people when it comes to wealth building.
While some of these “what not to do” suggestions seem obvious, I’ve seen them played out time and again. Hopefully, the list will provide you with some insight on what to stay away from … or at least know when you are walking on thin ice! If you have questions, we are always here to help find answers.
Matthew E. Chope, CFP ® is a Partner and Financial Planner at Center for Financial Planning, Inc. Matt has been quoted in various investment professional newspapers and magazines. He is active in the community and his profession and helps local corporations and nonprofits in the areas of strategic planning and money and business management decisions. In 2012 and 2013, Matt was named to the Five Star Wealth Managers list in Detroit Hour magazine.
Five Star Award is based on advisor being credentialed as an investment advisory representative (IAR), a FINRA registered representative, a CPA or a licensed attorney, including education and professional designations, actively employed in the industry for five years, favorable regulatory and complaint history review, fulfillment of firm review based on internal firm standards, accepting new clients, one- and five-year client retention rates, non-institutional discretionary and/or non-discretionary client assets administered, number of client households served.
This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Matthew Chope and not necessarily those of Raymond James. Investing involves risk and investors may incur a profit or a loss. You should discuss any tax matters with the appropriate professional.