December is a time for reflection, especially when it comes to your finances. The expensive holiday season -- think gifts, party outfits, and festive drinks -- means you're probably thinking about how to stick to a budget and keep costs down in 2014 (and dreading your January credit card statement).
It's also a time to reflect on mistakes, which is why I've rounded up the top personal finance fails of 2014. The purchases that made me cringe, the examples of internet over-sharing that made me wonder how someone's identity wasn't stolen sooner. All so you can avoid their mistakes in 2015, and kick start better financial habits.
Every time a celebrity claims bankruptcy people wonder how they could have squandered away millions of dollars without thinking about the future. In the case of NHL player Jack Johnson, his money troubles are due to putting the wrong people in charge of his finances. Johnson's parents were in charge of managing his $18 million in earnings over the last nine years, and squandered much of it away on luxury purchases (many of which weren't paid for in full and went into collections). His $5 million annual paycheque is now garnished heavily to pay off those purchases, and he claimed bankruptcy in October -- and also learned a valuable lesson about putting mom and dad in charge of your fortune.
The lesson here is simple: make sure you put professionals in charge of managing your money, and hold them accountable for how it's being spent. Unfortunately being related to someone doesn't mean they'll do the right thing.
It might be obvious to you that it's not smart to post photos of your credit card, bank statement, or paycheque online, but not everyone stuck to that rule in 2014. Hundreds of teens posted photos of their first paycheque with hashtag #myfirstpaycheck on networks like Instagram, opening the door to identity theft. Not surprisingly, a group of thieves in Minnesota managed to cash almost $2 million in counterfeit cheques after opening bank accounts using details gleaned from those social media photos.
In 2015 remember to keep your financial details private, and don't post your personal details online. Ever. And if you have kids, remind them that it's not just their friends who are paying attention to their social media feeds -- fraudsters can search hashtags too.
One of the most basic personal finance mantras is to live within your means, but for some people that just isn't enough. The #richkidsofinstagram mentality seems to be the motivation behind New York teen Mohammed Islam, who reportedly made $72 million trading stocks on his lunch breaks, and bought a BMW he couldn't even drive yet. His story turned out to be fake, and his parents said they want to disown him for lying.
Our lesson learned from Mohammed is to be honest about your finances and live within your means. Too many people are worried about portraying themselves as better off than they actually are just to keep up with the 'Joneses', and that can result in credit card debt, or in this case a string of bad headlines.
"Babymoons" are becoming the norm for expectant moms looking for one last vacation before they give birth. One Canadian couple traveled to the U.S. nine weeks before their baby was due, and the woman went into labour and had her baby while away. Though the couple was assured Blue Cross insurance would cover their medical bills, the insurance provider denied the claim, and now the couple is stuck with a $1 million bill.
This is classified as a fail because you have to do your due diligence when traveling. It's no secret that getting health care outside Canada can result in astronomical costs, so make sure you get a second opinion when traveling abroad so you're sure you're covered for any situation.
If you think paying $25 to check a bag is expensive, then you probably can't imagine getting a $1,100 bill for using in-flight Wifi. That's what happened to a Canadian traveler on Singapore Airlines -- he purchased a 30MB data package for $28.99, but upon landing received a bill for $1,171 for additional data usage charges. The airlines says he has to pay up since he agreed to the terms and conditions when he purchased the original package.
This story reminds you to always read the fine print, whether it's for something as innocuous as a Wifi package, or something as big as a home purchase, mortgage or other loan, or a credit card contract. Know what you're signing up for, or risk facing the same fate as this shellshocked traveller.
When was the last time you checked your credit card statement for fraudulent charges? This year an Ohio couple got away with purchasing diamonds, Vespa scooters, and other luxury items by using publicly-available personal information and stolen credit card numbers from celebrities including 50 Cent.
The lesson for 50 Cent -- and for you -- is to monitor the activity on your credit cards. While most people would notice "dozens" of Vespa scooters charged to their card fraudulently, would you notice a tank of gas or an online shopping purchase?
Hopefully these lessons will help you kick start your finances in 2015 -- whether you're saving up to buy a home, trying to get out of debt, or just trying to stick to a budget, learn from the lessons above and follow the basic financial rules: live within your means, spend less than you make, and save as much as you can. Happy New Year!MORE ON HUFFPOST:
It may seem like your 401K is building slowly, but if you take the right steps, you’ll be set for retirement. If you work for a company that matches your 401K contributions, invest up to the max. To invest even more, open up a Roth IRA and invest up to the max. Just be patient and your investments will grow over time.
If you’re a saver and your spouse is a spender, it’s time to sit down and have a serious talk. In a marriage, this can lead to arguments and even divorce. Create a calm environment in which to speak and be sure to have a discussion with your spouse, instead of at them.
If you’re scared to move or invest your money, leave the majority somewhere safe, like a money market fund, a savings account or a CD. Make sure all of your debt is paid off and little by little, put some of your money in an exchange-traded fund. This way, you can test the waters and get a feeling for how investment works without risking too much.
After the economy took a hit, lenders became stricter about giving out mortgages to those who were not qualified. So, generally, you don’t have to worry about taking out a mortgage you can’t handle. Go for a 15 or 30 year mortgage, and make sure you have enough money to put down at least 20%.
If you don’t qualify for a credit card, you can still build your credit. Start by getting a secured card at a bank or a credit union and use the card responsibly. Eventually, you’ll be able to obtain a credit card or another form of credit.
It’s important to know your options when it comes to paying off student loan debt. FinAid.org is a fabulous resource with calculators and other resources to help you figure out the best repayment method for you. Beware of income-based repayment plans, as you can only pay back 10% of your income, and after 20 years the loan is forgiven, but you will still owe federal income tax on the original amount when all is said and done.
If all of your debt is paid off, you should put your money in stocks that have a secure dividend. This means that you’ll receive a payment from the investment every three months.
Budgets are like diets – you deprive yourself and lose 20 pounds, and then you wind up gorging and regaining 30. Instead of going on a budget, be in control of your money. Don’t cut back on everything. Cut back on the frequency of things like getting coffee at Starbucks or going to the movies every week. Start little by little and take notes on where your money is going. Use the Expense Estimator on SuzeOrman.com to determine where you are overspending and underspending.
Every time you spend money, ask yourself, “Is this a want, or a need?” Take the money you would have spent on “wants” and put it in a savings account. When you pay in cash, save your change and put it in a jar. All of these small steps can help you save up for that big thing you really want.
People think that they’ll never die, get sick or be in a position where they can’t work. Being prepared for the future is important so that your loved ones are taken care of when you can’t take care of them. Make a will, sign up for term life insurance and be sure to appoint the right beneficiaries. Children won’t be able to access the money until they reach adulthood, so it’s best to appoint a trustworthy adult who can handle finances until the children are grown.
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