12 Things You Shouldn’t Do with Your Money

What not to do with money

Offering money advice and guidance can help direct one to a life of financial freedom. As we reveal financial experts advice from Go Banking Rates and their top 12 things you shouldn’t do with your money, take into consideration your own financial situation and how you can change or alter your money management skills.

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Things you shouldn’t do with your money:

1. Don’t Cash Your Paycheck

Having cash in hand can be dangerously tempting. “You will most certainly spend it all” if you cash your paycheck rather than have your employer directly deposit it into your bank account, said Barbara Friedberg, a financial expert and founder of BarbaraFriedbergPersonalFinance.com.

“Even better is to automatically transfer a percent of your paycheck into a retirement investment account and direct-deposit the remainder into a bank account,” she said.

One such advantage about a workplace retirement plan such as a 401k is that money is automatically deducted from your pay and invested. You don’t see it so you won’t spend it.

2. Avoid Special Finance Deals

Promotional finance offers that provide zero or low interest rates on a big purchase might sound like a great deal — until you wind up paying more than you expected. That’s what happened to Grayson Bell, an entrepreneur and personal finance blogger.

“Don’t finance a new vehicle, or watercraft in my case, based on the low promotional monthly payment. I financed a new $10,000 Jet Ski with no money down and no real way to pay for it based on a radio ad promoting a super low $69 per month payment. What I didn’t read was the rate was only for two years, then it changes to include retroactive interest based on the loan amount,” he said.

“Those financing deals can ruin you if you’re only looking at the monthly payment. Go through the math and read all of the fine print. They get you in with the low monthly payments, but keep you paying for much longer than you anticipated.”

These special finance offers are only a good deal if you can pay off the purchase without incurring interest.

3. Don’t Co-Sign a Loan

Michelle Schroeder-Gardener, another personal finance blogger, said you should never co-sign on a loan for someone unless you have the means to pay it back fully. “The fact is that you never know if the person will be able to pay every single payment, so it’s best to prepare yourself,” she said.

4. Watch Out for Excessive Spending

You can rationalize spending for purchases you don’t really need, but ultimately, it will prevent you from building a secure financial future. One of the tenants of building wealth is to live below your means. Saving and investing should be your priorities so you can help pay for you children’s college costs and live comparably in retirement, said Cathy Curtis, a fee-only financial advisor.

5. Don’t Carry Cash When Traveling

Sure, carrying and using cash is a good alternative to running up credit card bills. However, holding substantial cash when you’re traveling can invite unfortunate situations.

You could lose it or you could be a victim of theft, which is not uncommon in high tourist areas, Curtis said. She suggested using traveler’s checks or credit cards as an alternative to cash. Both carry the promise of a refund if they’re lost or stolen.

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6. Avoid Giving Information Over the Phone

Phone solicitations often involve raising money for legitimate organizations. Unfortunately, they’re also an easy way for con artists to scam well-meaning donors. Never give out your credit card number over the phone in that situation, Curtis said. Instead, ask the solicitor to mail you the information. This way, you can research the organization if you are unfamiliar with it and make sure it’s legitimate.

Giving out your credit card number to someone you don’t know could result in potential fraud and identity theft, a costly and nightmarish ordeal.

7. Don’t Shop When You’re Emotional

It’s best to avoid shopping when you’re feeling down because of the tendency to spend more. Another situation to avoid is pushy salespeople. Don’t let them flatter you into buying something you can’t afford.

You might need some positive reinforcement but getting it from a clerk whose interest is in making a sale will cost you. There are other ways to feel good about yourself without shelling out cash. Don’t get sucked in to flattery. Make decisions based on your need and your budget, Curtis said.

8. Don’t Opt Out of Your 401k

Opting out of your 401k plan is one of the worst money moves you could make, said Esther Kim of ForUsAll, a low-cost 401k plan provider for small businesses.

Many companies use automatic enrollment as a default for employees who don’t make an election to participate in the 401k plan. Make sure you choose to enroll in the plan and increase the amount you contribute above the auto-enrollment amount. Then sign up for your plan’s automatic escalation feature, which will increase your contribution percentage by an amount you specify each year.

9. Dodge Advisors You Don’t Trust

Choosing a financial advisor can be the most important decision you make. It can also mean the difference between building wealth for retirement or becoming a victim of fraud or paying excessive fees.

“Never invest your money with someone you don’t trust, even if you can’t pinpoint the source of the mistrust,” said Julie Rains, a finance blogger.

Get recommendations for advisors from relatives and friends you trust. Research their designations and background at the Securities and Exchange Commission website or on the Financial Industry Regulatory Authority site. You can also contact your state agency in charge of regulating financial advisors for a background check.

If you feel uncomfortable with a financial advisor, even one who came highly recommended, walk away.

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10. Avoid Investments With Limited Access

It’s a no-brainer but not always practiced. You should understand the investments you purchase and their terms.

“There are many investment products available that will lock up your money, limiting your access,” said Daniel R. Zajac, a certified financial planner at Simone Zajac Wealth Management Group in Philadelphia. “You should be keenly aware of when and how you can get to your money, even more so if you make the decision to put a large portion of you assets in something that restricts access.”

For example, individual stocks, mutual funds and exchange-traded funds have a high degree of liquidity. By contrast, illiquid investments are those that cannot be sold quickly without incurring a significant loss in value or in which there is no established secondary market. Examples include non-traded real estate investment trusts, some collectibles and insurance-based products with high surrender costs.

11. Don’t Buy Up Company Stock

Owning company stock can be a valuable addition to your portfolio, Zajac said, but don’t put too much of your money in that investment. If your company experiences a downturn, you could lose your investment, your job and your health insurance in one fell swoop. A good rule of thumb is to limit your company stock exposure to 10 percent of your total net worth, he said.

12. Sidestep Using Insurance as an Investment


“Insurance as an investment is rarely, if ever, a good idea,” said Zajac. “It’s an especially bad idea for those just getting started. Your focus should be on creating an emergency fund, creating liquidity and contributing to your retirement. Focus on buying term and investing the difference.”

Cash-value life insurance is often pitched as a retirement savings vehicle to high-earning business owners and professionals. While this might be a viable solution in some cases, it is generally a better idea for these folks to take advantage of more traditional retirement vehicles such as a 401k, he said.

These tips will help you avoid financial hardship and put you on the path to a more secure future.

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From GOBankingRates.com: 12 things you should never do with your money

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