Avoid Middle-Class Land Mines
April 20, 2008 – 8:12 amYesterday I wrote about common financial mistakes that drive me nuts. I’ve made a bunch of them, and perhaps you have too. Today I’d like to continue along this train of thought and discuss some key learnings from Dave Ramsey.
As I mentioned before I listen to 1 hour of Dave Ramsey a day (his free podcast) when I workout. It’s great because I get about an hour of entertainment in about 39 minutes (b/c the podcast doesn’t have all of the lame commercials), and I usually learn something in the process. You can view my opinion of Dave Ramsey here.
After listening for quite some time, I’d like to suggest that you can place yourself (and your family) WAY ahead of the curve financially by simply AVOIDING common mistakes.
Now I could spend months of your time (and mine!) arguing asset allocations, efficient market hypotheses, benefits of one mutual fund versus another, or whether gold should only be purchased as jewelery. These topics may be discussed at some point, but not today.
Instead I’d like to simply point out that you don’t need the perfect “anything” to improve your financial situation. Sometimes it’s o.k. to average, and in that spirit it’s much easier to be above average if you can avoid the mistakes of others.
Please understand that I am in no way being critical or judgemental of the Dave Ramsey shower callers or of anyone struggling to make ends meet. I do believe that a little knowledge and/or experience can be of great help to others. In that spirit, here is a list of common financial themes, or mistakes, to avoid if at all possible:
- Co-signing for a loan
- Getting an adjustable rate mortgage
- Buying a house with less than 20% down
- Buying a new house before selling your old house (when you relocate for a new job, for example)
- Getting a pay-day loan (99% annual interst sound appealing?)
- Buying too much car (i.e. buying a new $30,000 car or lease when you earn $40,000 a year)
- Not having an emergency fund (or not having a sufficiently large emergency fund of 3-6 mo. of expenses)
- Going into business with friends or family
- Trying to perform estate planning without professional help (i.e. “just deed the house over to me grandma” or “just write your grandchild a check for $20,000 and we’ll put it in the kids college fund”)
- Leaving land or a business to multiple heirs (do you really want to burden your heirs and cause potential for strife?)
- Buying anything but term life insurance (in some very specialized situations this may not apply)
- Buying too much home. If your spouse looses their job can you afford your home? If you get sick and don’t work for three months, will you be behind in your payments?
- Not having a budget in place every month
- Loaning money to family members
- Not being in agreeement with your spouse on financial matters
- “paying off” your credit cards with a HELOC (home equity line of credit), and then celebrating by charging more stuff on your “paid off” credit cards
- buying a time-share
If you can avoid doing all of these things, you can avoid most of the middle-class financial land mines that have plagued a lot of us (myself included).
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