What terrible financial decisions have you witnessed your family, friends, or coworkers make?

[tzolkin]

The worst I've ever heard was an hourly employee who was turning down overtime because "if you make too much money, you get bumped to the next tax bracket actually take home less." It is amazing how many people don't understand how tax brackets or withholdings work.
...
"Usually" is correct because it depends on rate. Our latest purchase offered a 0% rate or $500 cash back. Less than a 1% return if we took the cash back so we'll let that loan ride.

I find a lot of people are debt adverse without really considering that there is math involved.

Yes, these are reasons why practical math and financial literacy are important subjects to be taught.

I can't even count how many times I've heard the same thing about tax brackets or a complete lack of understanding about how a tax refund works.

When I went with my daughter to buy a car there was an offer for a 0% interest loan that had a $750 fee. I did a quick amortization calculator and the total interest that would be paid over the life of a 3% interest loan was less than $500. So, it would actually have been MORE expensive to take the 0% loan than the 3%, but I think the vast majority of people would have just automatically taken the 0% loan because it seems like it would be less. I mentioned it to the finance manager and he just said, "Yeah, most people don't do math"

 

[JoeA]

A friends soon to be ex-husband fell for a IRS scam to the tune of $35k that he took from their savings, credit cards, and money that she'd been saving for two years to return home (another country) to visit her family. The soon-to-be ex ignored her concerns about withdrawing money, she'd received notifications from the bank and credit card companies. Then proceeded to blame falling for/paying the scammers on her.

Sadly he's fallen for other scams a few times in the past.

I've been watching Scammer Payback on Youtube and I'm amazed at the scams they are running (mostly) out of India...and that people think paying off your "debt" with Target gift cards is an acceptable form of payment!

 

[Grand Koalafornian]

New car every few years when they really don't have the money for it. A former coworker had negative equity in her car from buying a new one before the old one was paid off. Apparently, it's fairly common.

 

[AndreaDM]

Yes, these are reasons why practical math and financial literacy are important subjects to be taught.

I can't even count how many times I've heard the same thing about tax brackets or a complete lack of understanding about how a tax refund works.

When I went with my daughter to buy a car there was an offer for a 0% interest loan that had a $750 fee. I did a quick amortization calculator and the total interest that would be paid over the life of a 3% interest loan was less than $500. So, it would actually have been MORE expensive to take the 0% loan than the 3%, but I think the vast majority of people would have just automatically taken the 0% loan because it seems like it would be less. I mentioned it to the finance manager and he just said, "Yeah, most people don't do math"

I had to do that with the last new car I bought, one of the offers was a 2K rebate and in very small letters it said if you financed through that car manufacturer. I checked with my credit union and got a rate low enough to save well over 2K in interest. The finance manager seemed really miffed that I didn't just sign the 8% interest loan in order to get the rebate, I'm with you that most people do NOT do the math. That's a huge frustration of mine, the price the dealers advertise is IF you are able to take advantage of ALL the rebate/discount offers.

 

[dvcgirl67]

What? Fire him.

Yes, I'm not clear on that advice either. We just go with Vanguard index funds....which we've always been happy with. We moved our money into a more aggressive allocation when the market tanked, and once it hit 32K we moved into their 60/40 balanced fund. Retirement is less than 10 years away, and so we need to be a bit more defensive to protect what we have.

 

[DLgal]

Yes, I'm not clear on that advice either. We just go with Vanguard index funds....which we've always been happy with. We moved our money into a more aggressive allocation when the market tanked, and once it hit 32K we moved into their 60/40 balanced fund. Retirement is less than 10 years away, and so we need to be a bit more defensive to protect what we have.

Yep, selling off at a perceived high only makes sense if retirement is imminent, but if that was the case, shouldn't have had that much money in a high risk investment to begin with. You are always better off riding out the ups and downs than trying to time the market.

 

[dvcgirl67]

Yep, selling off at a perceived high only makes sense if retirement is imminent, but if that was the case, shouldn't have had that much money in a high risk investment to begin with. You are always better off riding out the ups and downs than trying to time the market.

You're right. And honestly, everyone needs to stay invested in stock mutual funds when they're retired and older...unless they enjoy eating cat food. My in-laws are lovely people. They were great parents, paid for my husband's college and saved for retirement. But they were way, way too conservative in how they invested and as a result...they're running out of money. They're 87 and 89 and do get social security, but are down to about 100K in the 401K . We started supplementing their income a few years back when we noticed they weren't really doing as many outings with their friends (to Broadway shows...etc). They do own a home that is worth about 350K, but we're saving that if we either needs to go to a LTC facility. If they'd simply invested in a fund like we're in now...a 60/40 fund, they would not be in this position. CDs and MMFs may have allowed my mother-in-law to sleep better during their earning and investing years....but, here we are now.

One thing that we've done recently to help us sleep at night is increase our "emergency fund" to two years of expenses. We have a small "house fund" for all of the stuff that can happen unexpectedly, and a "pet fund" for emergencies that pop up with them. But the big emergency fund never gets touched. It makes us feel better and we look at that as our first two years of income when we do retire, which really just means my husband will leave his job. He also gets a paid one year sabbatical with his employer, so a lot of people use that year as their first year of retirement. The only hitch in our plan....is health care. We'd have to buy our own plan before medicare kicks in....if we retire around 60 like we'd prefer to do. We have health insurance during the sabbatical year and then could do Cobra for a year....but that leaves us three years short. So, we'll see what that looks like when we get closer I suppose.

 

[mickman1962]

I will more than likely have a mortgage at 68. I don't plan on living in a falling down mobile home the rest of my life and I can't start saving for a house until I'm 50.

I will have a mortgage when I'm 90 (if I live that long). Have money to pay cash for my new house but at 2% interest took out a 30 year loan. (I'm 60)

 

[DLgal]

I will have a mortgage when I'm 90 (if I live that long). Have money to pay cash for my new house but at 2% interest took out a 30 year loan. (I'm 60)

My parents took out a brand new mortgage when they retired at 67. It's small...about $120k on a brand new build in a retirement community with great resale potential. They will never pay it off and that's fine. That money is making them WAY more invested than the 2.5% or whatever they pay on the loan. They recently refinanced it down and have an additional $300/month in their pockets.

People really put too much pressure on being "mortgage free", often to their own detriment. Put your money where it can make you the most money, and take advantage of cheap loans whenever possible.

 

[TexanMinnie]

I mean using a CC isnt a bad idea to rakc up points you jsut need the cash to pay it off that month. Grats on getting outta debt!

Correct. But, I would venture to say that some to most people don't pay it off. It takes a lot of discipline and good financial behaviors to do that, which I didn't have at that time. Now, I do!

 

[RamblingMad]

My parents took out a brand new mortgage when they retired at 67. It's small...about $120k on a brand new build in a retirement community with great resale potential. They will never pay it off and that's fine. That money is making them WAY more invested than the 2.5% or whatever they pay on the loan. They recently refinanced it down and have an additional $300/month in their pockets.

People really put too much pressure on being "mortgage free", often to their own detriment. Put your money where it can make you the most money, and take advantage of cheap loans whenever possible.

It’s all relative to income and withdraw rates. I would always try to keep mortgages no higher than 3x income.

 

[DLgal]

It’s all relative to income and withdraw rates. I would always try to keep mortgages no higher than 3x income.

Yeah, that's good advice. At this point, they are 5 years retired and up about 20% in their portfolio, despite the RMDs. They are living just fine off social security and a small pension.

 

[Travel60]

All of the above:
Carrying credit card debt. Pay it off every month. Don't charge if you can't afford it.

Refinancing a house to get funds to remodel unless you are making the house significantly larger.

Buying new car every 3 years. Most cars today will last 12-15 years if you take care of them.

Not maxing out 401K/403B. If you can't afford to max out at least contribute enough to get employer match.

Not saving for children's education, 523 plan.

Co-signing anything for anyone.

Eating out every meal or even most meals and buying three or four $5 coffees daily when you can't afford it. I see this with young folks all the time.

 

[bapcap]

When my sister was married, she went along with whatever her husband wanted to do financially. Then, after 28 yrs, he decided he wanted a divorce. By then, they had at least 2 credit cards almost maxed out, 3 timeshares(yep, 3), and had just moved into a home he bought(her name was not on the title/loan) about 8 months before he left her. She was in shock for months while he hurried the divorce paperwork through. To this day, I get so mad at what she agreed to in the settlement. Told my husband, I think she was agreeing to whatever he wanted at the time, thinking if she didn’t make him mad, he would change his mind. Now, she lives with her older daughter in a small apt...but, she still can’t seem to budget her money well. Guess she is planning on our mother’s money when mom dies as her “retirement plan”...

 

[disykat]

My husband and I are both savers and careful, but he was waaaay too conservative with money, IMO. He grew up in a family that didn't even believe in banks, much less the stock market. (and still doesn't) I rolled my first little retirement account into a pretty aggressive ROTH when I stopped working to become a SAHM and then started college investments with my part time income when the kids started school. It took quite a few years for those accounts to get big enough for him to really take notice. Once he did, he finally started to get on board - but he lost so many years of earning power by keeping his own retirement accounts so conservatively set! He was honestly shocked when the college funds paid for a significant amount of the kid's school. In his mind, I had gambled that money away. Now that I also have an additional small retirement account from my second career, he has lots of real evidence to see the growth that can happen from a relatively small initial investment. He was the main breadwinner the majority of our marriage, but his retirement account makes me crazy because it has only really grown in the last few years and we're almost retired. It will be adequate because he always contributed, but it could have been really good.

It's amazing how dramatically your upbringing, education, and culture of poverty/middle income/wealth can play into your decisions.

 

[china mom]

My husband and I are both savers and careful, but he was waaaay too conservative with money, IMO. He grew up in a family that didn't even believe in banks, much less the stock market. (and still doesn't) I rolled my first little retirement account into a pretty aggressive ROTH when I stopped working to become a SAHM and then started college investments with my part time income when the kids started school. It took quite a few years for those accounts to get big enough for him to really take notice. Once he did, he finally started to get on board - but he lost so many years of earning power by keeping his own retirement accounts so conservatively set! He was honestly shocked when the college funds paid for a significant amount of the kid's school. In his mind, I had gambled that money away. Now that I also have an additional small retirement account from my second career, he has lots of real evidence to see the growth that can happen from a relatively small initial investment. He was the main breadwinner the majority of our marriage, but his retirement account makes me crazy because it has only really grown in the last few years and we're almost retired. It will be adequate because he always contributed, but it could have been really good.

It's amazing how dramatically your upbringing, education, and culture of poverty/middle income/wealth can play into your decisions.

DH and I are similar. We contributed similarly to our 457s but he allocated much more conservatively and my accounts are much fatter.

 

[Forevermarypoppins]

The most current one I can think of is my friends niece(adult)
Her and SO (not married) 1 child, expecting another and buying a $400.000 new home. (in my area is around $225.00-$250,00
She works minimally as an RN
My friend and her sister( the nieces mother) are so worried that A) the relationship won't last B) that niece will have to go back to work more or FT to help pay for said home. I see their point of the younger generation not wanting to start out with "starter homes". They want it all and they want it now!

 

[Tess]

The only hitch in our plan....is health care. We'd have to buy our own plan before medicare kicks in....if we retire around 60 like we'd prefer to do. We have health insurance during the sabbatical year and then could do Cobra for a year....but that leaves us three years short. So, we'll see what that looks like when we get closer I suppose.

Sadly, this is the hitch in everyone's retirement plan IF you want to retire before 65. The unpredictable nature of HC costs makes it difficult to plan and heaven forbid if you become ill and need care.

 

[barkley]

I had to do that with the last new car I bought, one of the offers was a 2K rebate and in very small letters it said if you financed through that car manufacturer. I checked with my credit union and got a rate low enough to save well over 2K in interest. The finance manager seemed really miffed that I didn't just sign the 8% interest loan in order to get the rebate, I'm with you that most people do NOT do the math. That's a huge frustration of mine, the price the dealers advertise is IF you are able to take advantage of ALL the rebate/discount offers.

we intended to pay in full for our most recent car until we learned there was a few thousand dollars rebate available for financing through the manufacturer. we looked at the fine print and confirmed that the loan had no prepayment penalty. we signed up for the deal and before the first payment came due turned around and paid off the loan in full. now i know this isn't an option for everyone but when in the planning stages of purchasing it's worth giving a call to your credit union to see how they define 'new car' for loan purposes. with ours it's a formula that basically breaks down to age of the car/mileage so it's possible to coordinate with the credit union to take advantage of the manufacturer's rebate loan offer (if it's got no prepayment penalty) and just drive the car from the lot to the credit union to arrange for them to coordinate a new car loan to pay off the one you just took out (get the rebate and the lower interest rate).

 

[Mackenzie Click-Mickelson]

I see their point of the younger generation not wanting to start out with "starter homes".

In my area starter homes are just so pricey to begin with. Of course there's really really nice homes but don't equate price with type of home, especially in strong seller's markets.

Our rental house we had in 2013-2014 was built in 2006 but was a starter home. 1,500 sq feet 2 bed 2 bath with a 3rd room not considered a bedroom (doesn't have a closet). When we rented it the area was in a buyer's market and the owners had actually taken it off the market after trying to sell it for $160,000 (and really that was because the area it was in was a nice area) in between tenants.

in 2015 our area became a seller's market and has stayed that way. It sold in 2018 for $215,000. The appraised value from the county for 2021 is $242,400. If only looking at today Zillow Zestimate is $273,943.

There is def. overextending yourself but I think people need to also get away from thinking you have to do a starter home just because that's what someone has said you have to do. It has much more to do with finances than a perceived moving up you must accomplish.

At this moment we have low interest rates but too competitive of a market so only those well off in finances can get into homeownership and others are blocked, even from the starter homes.