Even if you consider yourself to be fairly intelligent, that doesn’t mean you’re immune from making money mistakes. The best among us are capable of making the biggest money blunders. It includes blunders made by the doctor who didn’t write a will and left behind six-figures in taxes due. Or the person who didn’t buy disability insurance only to develop multiple sclerosis.
The thing about this is, people are driven by their emotions. Maybe it’s pride or thinking we have everything under control. Still, a lot of us aren’t prepared for when bad things happen. We think we might be able to cross that bridge when we get there. That’s when things get sticky. Making money mistakes now will only hurt us in the long run.
“We’re emotional animals, not just rational ones,” said Jill Schlesinger, certified financial planner. “So, even otherwise intelligent people are stymied by their emotions — usually fear and greed — and their cognitive biases.” It’s essentially the fear of dwelling on what could go wrong and the assumption we can predict the future.
It can be overconfidence or a great amount of optimism, as well. For example, the guy who didn’t buy disability insurance surely didn’t think he would need it. He made the wrong prediction that nothing would happen to him. Many young people make that mistake. Then when he developed MS, it destroyed his life. He wasn’t prepared.
How to Fix Major Money Mistakes
The solution to the ‘what ifs’ in life isn’t to calculate what might go wrong. You could be right and your life is smooth until a ripe old age. Yet, the odds of that happening are astronomical. Bad things happen to all of us. Instead, you need to calculate what the response would be if the worst did happen.
What would you lose if you developed a horrible disease or injury and couldn’t work? What if you slipped on some ice in the parking lot and broke your leg? Are you prepared for what would happen to your family if you died? From there, plan accordingly. Write out a list of all the things that could possibly leave you and/or your family vulnerable and prepare a plan.
Slowing Down and Smell the Roses
The biggest piece of financial advice we can give you to prevent money mistakes is to slow down. The whole goal of a salesperson is to create urgency. If they can get you in a panic and sell you quickly, then you can overbuy. A lot of mistakes are made when the pressure is on. You can be investing in something right now that has no value to you whatsoever.
The best way to not make any money mistakes is to slow down. Ask yourself a series of questions. What does the product or service cost? Are there any alternatives that might be better suited for my budget? Are there any fees or penalties? What if I want to stop using this product or service? What are the tax consequences?
Finally, if you don’t know something, that’s fine. Don’t be that person who is too prideful to seek out expert help. Money mistakes don’t have to happen. Having someone on your side, who can lead to the right investments and guide you is extremely beneficial. Most Americans aren’t even sure what all their options are, leading to many money mistakes and blunders.
“We all make dumb mistakes, but some of them can be costly — and life-altering,” Schlesinger says.