3 Biggest Money Mistakes

By Kerrie Beene, CFP®

For the past few weeks at Rooted Planning Group, we have been focusing on education. We have introduced Sammy the Rabbit as a great free resource to teach your kids about money. We have also been giving money tips to young people and recent graduates. However, one of the best ways to learn is by learning from mistakes. Often these are mistakes we make on our own but hopefully we can also learn from other’s mistakes. Below are the 3 biggest mistakes I have personally made with money.

Automobile Purchases - I love vehicles. I know the make, model, and trim level of every vehicle owned by anyone I know. I like helping others pick out vehicles and researching them online. If I had a never ending flow of money I would own multiple vehicles.

However, a vehicle is a depreciating asset. This means it will go down in value beginning with the moment you make the purchase. The mistake I made was trading my paid for car in for a different one. The car I had was a great car and was paid for but I decided it was time for an upgrade. I convinced myself it was smart because I was buying a used vehicle. The reality was that I did not need one, I just wanted one.

According to Experian, the average car payment in 2019 was $554 per month. I can’t remember exactly what my car payment was when I did this, but If I had driven that car for at least 10 years and invested that car payment instead in something that could have earned around 5%, I could have had over $85,000 saved. This money would be very helpful right now as I prepare to start sending my children off to college. So, it is not always can you afford the payment, you also have to think about what are you sacrificing by having to make the payment.

The other mistake that people often make is trading in a vehicle that is not worth what they owe on it. This is called being upside down on the vehicle. Unfortunately, car dealerships will just let you roll that negative amount into your new loan. That means if you buy a $20,000 car and you trade in your vehicle that you are upside down on, your $20,000 will cost you way more because of the negative equity you brought over from the other loan.

Not Having Enough Savings - One of the hardest things for most of us to do is maintain a very hefty bank account. One of the most common terms you hear when people talk about savings is the “emergency savings.” This is 3 to 6 months of expenses in case of job loss or some other event. The idea being that you could live without an income for that period of time by using your emergency savings.

While we seem to maintain a savings balance, keeping 6 months of expenses has been very hard to maintain over the years. It seems like things that are not actually emergencies, like replacing tires or other expected expenses, sometimes cause us to dip into our emergency fund. These expected expenses are not emergencies, we know we will need to replace tires.

Maintaining the discipline to save for things we know we will need in the future is one of the most powerful skills to a successful future. Figure out when you will need the item and the price and start setting aside the money now.

Time - Time seems to slip away so quickly. This is probably the biggest mistake I have made over the years is thinking I will take care of something later.

This upcoming school year my daughter will be a senior and then heading off to college. While we have saved some money for college, we are not quite where would we like. Time has gone so quickly and I did not maximize the time I had to prepare for the upcoming expense. It always seemed like something in the future. Yesterday she was 12 and soon she will be 18.

This is my biggest piece of advice, do not wait until later to start saving for something. The sooner you start to save for something, the smaller amount you may need to save.

High School Graduate Tips

By Kerrie Beene, CFP®

Freedom, Freedom, Freedom… that is how we all feel when we graduate high school, go out into the world, and finally become real adults! But since most 18 year old graduates don’t have a fully developed brain for a few more years, we thought we could share a few tips to help increase knowledge. These are tips for anyone, but especially recent and upcoming graduates.

1. Educate Yourself on Personal Finances. Whatever you do or do not know at this point is up to you. You can no longer blame your parents or your teachers for what you do not know. YouTube and Google can teach you all kinds of things. Educate Yourself, it is your personal duty to yourself.

2. Don’t sign up for a credit card because they are giving away free t-shirts and you want to feel like an adult. I know it is or will be important to build your credit but make sure you understand what that means and how to accomplish a good credit score. DO NOT get a credit card and start buying stuff and then not pay it off each month.

3. Avoid Student Loans if at all Possible. It is entirely too easy to get student loans. If you have to get a student loan, try to use it only for tuition and fees.

4. Start Saving Now. If you decide not to go to college or you are working in college, always try to save some money. Emergencies are not a surprise, things are going to happen in life that cost money.

5. Budget or at least monitor your spending. Learn how to control your spending. There are a ton of online tools and banking options that can make this easy. Mint is a great place to start for those who like technology.

6. Become friends with two words: Compound Interest. You need to make compound interest your friend and not your enemy. Compound interest works for you when you are saving money and against you when you borrow money. Here is a calculator that will show you how compound interest can help you when you begin to invest money. Here is another calculator that will show you how much compound interest will cost you on your credit card purchases.

7. Make Smart Purchases. Adulthood brings the ability to purchase big ticket items. Learn about how things are valued. Often a home goes up in value (appreciating asset) and a vehicle goes down in value (depreciating asset).

8. Exercise. Often students become less active once leaving high school. Exercise is a must to keep energy levels up and stress levels down.

9. Work. And Work Hard.

10. Fail. Do not be afraid of failure. Go out into the world and try new things. Sometimes they work out and sometimes they do not.

If you are interested in learning more about credit, we recommend Credit Karma.

If you are interested in learning more about compound interest, check out Investopedia’s Article and Video Here.