Do you feel like you don't make enough money to save or invest? Are you making money mistakes that are affecting your financial future? Jean talks with author Bert Whitehead about his new book, Why Smart People Do Stupid Things with Money: Overcoming Financial Dysfunction
, and about common errors people make with their money.
After years of advising people as a fee-only financial planner, Bert says he discovered that a lot of smart people were doing stupid things with their money. "I call this financial dysfunction—things that people do when they think they are doing the right thing, when in fact they are impeding their financial progress," he says. Bert shares some of the top mistakes people make with their money and offers advice to remedy these mistakes:
- Paying down a mortgage instead of fully investing in a 401k. "It is much more financially effective to fund your 401k, which is a great tax shelter, rather then paying down on a long-term fixed mortgage, which is a great tax deduction," he says.
- Waiting until you are older to start saving. Bert says young people should automatically save 10 percent of every paycheck. "For a month or two it is tight, but then for the rest of your life you will never miss it," he says. "The money you save when you are young is much more valuable than the money you save when you are older because of compounding."
- Waiting until you are "settled" to buy a home. Unless you plan on moving within five years, Bert says the first big investment you make should be a home. "You have to buy a house remembering that you are buying this house for the person you will be selling it to," he says.
- Leaving balances on credit cards. Bert says by not paying off balances every month, you may continue spending more than you make. "You have to live within your means," he says.
- Giving kids allowances without teaching them how to save. "It is important to teach kids about spending money," Bert says. "Put them to work and they see what it is like to live off the sweat of their brow," he says. "[Teach them] that they can be free someday—they can save up money into capital and they can live off the money their money makes."