Tuesday, October 23, 2012

5 Big financial mistakes you can avoid because I didn't

Photo Credit: www.mint.com

Along our journey to acquiring the $64K in debt we're currently committing to tacking, we made some pretty lousy decisions. I will share some of the most lousy ones in hopes that you will remember my experiences if/when you come up on similar decisions (and you will! - I know we weren't the only suckers who have been duped into making some of these same mistakes) and make smart informed decisions. 

1. Home renovation mistake: Laying $1000 of larger tile in an old house on an unlevel floor only to have many of them crack and ultimately have to replace all of them a year later.

2. Buy in bulk and "save" scheme: Buying into a grocery program $450/month for non-perishables and freezer meat for a year. The meat sucked (in my opinion) and we didn’t really eat that many non-perishables in the first place so we ended up spending twice as much in groceries.

3. Energy price guarentee scheme: Buying into an energy savings scheme (door salesman style) was a terrible..terrible..idea that ended up costing us double our monthly electricity use for 6 months which we ultimately couldn’t afford and upon realizing we had been duped, cancelled our contract for a lovely penalty fee of $1100. Many electricity companies now send out information warning customers about these companies. 

4. Don't pay for x months: Buying our washer and dryer on a store credit card under an “interest-free don’t pay for 18 months” plan. Like most other idiots, we didn’t pay them off until well after the 18 month mark and several hundred dollars in interest. 

5. Overdraft for emergencies: Getting overdraft was a mistake for us. Though this is arguable as some people enjoy having overdraft for security. However, if you always have enough money in your account (i.e. you are living within your means with a decent cushion of savings and access to something like a low interest line of credit) you should never have a need for overdraft. A few years ago, for a whole year, we had our overdraft completely maxed out. We were operating as if the overdraft limit was the zero and paying handsomely for it too. Ever since we dug ourselves out of the hole we have never looked back. Now instead of having an overdraft we have a small savings account with roughly $1000 in it for “emergency”.  In the event that this is not enough to cover our emergency, we’d have to rely on borrowing money but hey, at least we’ll hopefully be in a better place in the debt department and we’d be well ahead of the majority (64%) of people who couldn’t afford a one week delay in pay or an $1000 emergency.

Some time after we had rid ourselves of overdraft and were finally on our way to building our $1000 emergency fund, we had about $800 saved and our dog got loose and got hit by a car. We had to take him to the emergency animal hospital on a holiday weekend. He ended up being fine but the cost was $680. It hurt so much more to hand over that money from our savings. In many ways, it would’ve been far easier to charge it to a credit card or to use an overdraft and say we’d pay it off later. I really think there is something psychological there. This event really did reaffirm our decision that overdrafts are not for us and instead that having an emergency savings (however small) is our preferred option.  

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