Buzz
Money can be one of the trickiest relationships we have. There’s so much of it in the world—so much that it’s nearly impossible to calculate an exact total—and yet, you probably still feel like it’s not enough. Even if you're doing well financially, you're likely not part of the world’s 2,640 billionaires, nor even one of the 87.5 million millionaires.
Still, you probably feel confident about your financial abilities—because most people do—even though financial literacy has measurably decreased. Even those who are relatively wealthy often overestimate their financial know-how. Money is a tricky thing, and it’s easy to believe that your wealth is a result of sharp financial insight and savvy business moves, rather than a bit of luck and avoiding the lottery. This kind of overconfidence can lead to costly mistakes—like making these financial decisions that appear smart, but actually aren't.
Taking advantage of discounts
A wise piece of advice is to be cautious when merchants or lenders present offers under pressure—like while you're at the checkout counter. It might seem tempting to grab a discount by signing up for a store credit card or credit line, but remember, it seems like free money!
Why it’s actually a bad idea: It's only free if you pay off the balance right away. If the discount doesn't outweigh the interest rate on the new credit line and you fail to settle it fast, you’ll end up losing money. Even with a promotional 0% interest rate, you'll probably still incur interest, as up to half the people who sign up for deferred interest loans fail to pay it off before the promotional period ends.
Life insurance for children
Purchasing life insurance for your kids may seem appealing—not because you hope for their unfortunate passing, but because it offers them coverage at an affordable rate, and before any medical conditions could limit their future eligibility. Additionally, many life insurance policies can accumulate cash value, turning them into potential investment opportunities for your child's future.
Why it’s actually a bad idea: You're essentially setting your children up for a lifetime of premiums. The advantage of insuring them early only works if they stay on the same policy forever. More importantly, the coverage they receive won’t differ from what they could obtain with a standard policy when life insurance would truly benefit them. The only difference is that the cost over their lifetime will be much higher.
Living without credit cards
Credit cards are one of the most misused financial tools. They detach money from reality, making it dangerously easy to accumulate debt, and if you reflect for a moment, the interest rates they charge are exorbitant—the average credit card interest rate is almost 30%. Countless horror stories about overwhelming credit card debt make it seem like the only way to win this game is by not participating at all.
Why it’s actually unwise: Credit cards are, in many ways, necessary evils. They play a crucial role in determining your credit score, so if you ever want to borrow money (say, for a car or a house), not having a credit card can put you at a severe disadvantage. In today's world, they’ve almost become indispensable—while it’s possible to live without one, it’s a very smart move to keep at least one credit card in your wallet, as long as you're wise about choosing and managing it.
Frugality
If you’re finding yourself drowning in bills and working hard to reduce debt, you're likely pinching pennies at every turn. It may feel like you need to tighten your budget even more, cutting out everything except the essentials that keep you alive and help you pay off your debt. After all, surviving on plain toast and borrowing your neighbor’s Wi-Fi for the next five years will feel totally worth it when you finally crawl out of your financial hole, pale and shivering, from your makeshift money cave!
Why it’s not a great idea: While careful budgeting and cutting back on unnecessary spending is a solid foundation for achieving financial health, completely eliminating every little joy in life tends to backfire—and doesn’t have much of an impact. The common ‘make coffee at home’ tip certainly won’t turn you into a millionaire—saving $5 a day only adds up to less than $2,000 a year, which isn’t insignificant but also isn’t enough for a down payment on a house, even if you skip the lattes for the next two decades. Worse, denying yourself all pleasures will likely cause you to abandon your budget sooner rather than later. A smarter approach is to plan for your indulgences within your budget, so you don’t overspend—not to cut joy from your life entirely.
Taking loans from your 401(k)s
There will inevitably be times when the retirement funds you’ve accumulated seem like the perfect solution to your financial challenges. Whether it’s to pay off credit card debt, make a down payment on a house, or cover medical expenses, many of us—around 40%, in fact—treat our 401(k) like a regular savings account rather than a retirement fund. After all, that money could help you now, even if it’s intended for Future You.
Why this is actually not a good move: Around 86% of people who borrow from their 401(k) end up defaulting on the loan. Not only does this destroy the benefits of having a 401(k) in the first place, but it also leaves you responsible for paying taxes on the borrowed money. Future You will be pretty upset with Current You when you're stuck living in a van down by the river.
Purchasing a house
Houses are expensive, but we all need a roof over our heads. For many, owning a home is a significant goal. Despite the high costs, it remains a common choice for people who can manage the combination of funds and credit necessary to purchase one. Furthermore, owning a home is frequently seen as a smart financial decision, as property values tend to rise steadily. That $300,000 house you purchase today could be sold for a profit in just a few years.
However, the idea that buying a house is always a smart investment isn't entirely accurate. The substantial rise in home prices over the past decades was largely driven by decreasing interest rates, which have since plateaued. Additionally, mortgage payments and home value appreciation are just part of the equation. Inflation can also impact how much your home will be worth when it’s time to sell. The cost of maintaining a property, or 'carrying costs,' can significantly reduce any potential profit. While buying a house is often done for shelter, personal milestones, or as collateral, it shouldn't be considered primarily an investment.
Having a savings account
It's always a good idea to save money, and setting up an emergency fund for unexpected expenses is essential. For this reason, maintaining some sort of savings account is always recommended. While these accounts offer interest, many people are inclined to deposit large sums, feeling satisfied with the small returns they receive as they prepare for the future.
But here's the catch: savings accounts tend to offer very low interest rates—around 0.59% on average (yes, that’s under 1%). While some online banks might offer higher rates of 4-5%, it's still far from a lucrative deal. Once you’ve established your emergency fund, it’s wiser to invest the extra funds. A basic investment strategy can deliver an average return of 10% over the long term.
