First Person: The Money Mistakes We All Make

Morris Armstrong
Yahoo Contributor Network
First Person: More Fun, Less Expense

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I have a modest financial planning and money management firm in Connecticut and have been assisting people with their money needs for 15 years. Over that time I have seen people do things that made me shake my head and wonder, "why?" Still, just because a person makes a money mistake doesn't mean that they are stupid or careless.

Keeping Up With the Joneses

It is way too common for people to forget that they are indeed unique and that their financial situation may be different than that of the neighbors. How much money you make, how many assets you own, how much money you owe and how much you may inherit are four factors that are going to differentiate you from your neighbors. Live within your means and don't try to keep up with the people next door. Shira Boss wrote a book a few years back called "Green with Envy" that highlights this type of folly at different levels of wealth.

Buying Into Brand Names

Many people are branding conscious and that can be a waste of money. At the grocery store people insist on buying a heavily advertised brand name item when the identical product as a store brand can be bought for less. This usually means that you are buying the sizzle and not the steak. If you can shave 15 percent off your food bill without sacrificing quality why wouldn't you give it a try?

Over-Buying

One mistake that I, along with many others, made was buying too much house. When I was married there were only the two of us and we never had a house smaller than about 3,000 square feet. That meant that there was a lot to decorate, maintain and pay taxes on. We could have lived equally as comfortable in a smaller home that was less of a cash drain. People need to live in something that is affordable and allows them to pursue their other goals. The monthly payment should not be the only expense that determines home affordability.

Borrowing Instead of Using Assets

"Should I deplete assets or borrow?" If you have assets you need to consider whether or not it makes more sense to simply use them and then rebuild them up through the repayment mechanism, rather than take out a loan. This is especially true if you are near or in retirement. One client of mine borrowed money for 30 years without realizing it when they could have easily simply liquidated a portion of their portfolio to make up the difference.

Missing Out on Opportunities

An "alternative strategy" that people often fail to take advantage of is enrolling in a Flexible Spending Account offered through their employer. The account accepts pretax contributions and effectively allows you to pay for medical expenses, prescription drugs and some qualified expenses on a pre- tax basis. You have until March 31 of the following year to use the prior year's contributions, otherwise any balance in the account reverts to the plan. Since most people cannot deduct medical expenses on their tax returns due to the 7-1/2 percent threshold, this is a very effective method to save on taxes. It can easily save you 20 -25 percent.

Just like love, a mistake is in the eye of the beholder. Perhaps to assuage egos we should just call these "alternative strategies" instead of mistakes. Whatever description you like works for me, but please think before you act.