In her recent book, Love & Money: Protecting Yourself from Angry Exes, Wacky Relatives, Con Artists, and Inner Demon, estate management attorney...
Are you in debt? Are you living paycheck to paycheck? Do you and your family have a plan for what you’d do if one of you lost a job? Do financial pressures take a toll on your marriage? Does every day feel like you’re on a runaway train? Dr. Phil shares what he believes are the five biggest money mistakes people make — and what you can do to change your financial future.*
1. Believing in the Myth of Fixed Expenses
When people look over their budget, they often find a few fixed expenses that they claim they can’t live without. The truth is that there is nothing that you can’t get rid of. If you can’t buy groceries, you may need to get rid of your car — even if that means you have to bike or take the bus to work. There’s nothing that can’t go away. And if you can’t pay it, it has to go away. Everything but survival needs to be put aside until you can afford the expenses without going into debt.
2. Cashing out Your 401(k)
Unless it’s an absolute dire emergency, you should never cash out your retirement fund. It may give you a short-term fix, but the day will come when you wish you had that money. Instead, find a way to make new money as a way to solve your cash flow needs.
3. Believing that Fixed Income is the Only Answer
Don’t think that just because you’re on a salary that that’s the end of your earning power. Consider getting entrepreneurial and creating a home-based business that can generate extra income for the household. It could mean the difference between sinking or swimming.
4. No Emergency Back-up Plan
We are now in a society where more than half the households are double-income, with families living off both incomes and often spending it all. If that’s the case, then if one person loses a job or has a health disability, the other income can’t serve as a bailout, because you really depend on two incomes. You can’t live and spend like you’re always going to be at the most money you’ve ever made. It’s important to establish a savings account that you do not access unless it’s an emergency.
5. Living Beyond Your Means
It doesn’t matter what you think you deserve; it doesn’t matter what you think you need; it doesn’t matter what you think is the bare bones to fit in with your friends or neighbors. If you don’t have the money, then you can’t incur the responsibilities, the debt and the obligation. Put your ego aside and know you will sleep better at night when you have a roof over your head that you can afford. If you can’t afford what you have, like a house, car, or boat, then you must get rid of it. Get out from under it, and you’ll have peace of mind. It’s math, not magic!
* This information is provided for your consideration and information only. You should always consult with financial professional before making any significant financial decisions.