12 Financial Sins

John Lim

FINANCIAL MARKETS are often quick to punish investment sins. By contrast, if we err with our borrowing, spending and other personal-finance issues, problems might not show up until years later—but the damage can be just as great. Here, to complement last week’s list of 12 deadly investment sins, are 12 deadly personal-finance sins:

1. Pride: Keeping up with the Jones by buying luxury cars and fancy clothes.

Antidote: Realize the folly of buying depreciating assets you don’t need, with money you don’t have, to impress people you don’t like.

2. Greed: Operating with a “never enough” money mentality. A reporter asked billionaire John D. Rockefeller, “How much money is enough?” His response: “Just a little bit more.”

Antidote: Generosity. Giving away money will loosen its emotional grip on you—and make you happier as well.

3. Lust: Getting divorced.

Antidote: Invest more time and energy in your marriage.

4. Envy: Comparing your financial state to that of others. Since there will always be someone with apparently greater wealth, such comparisons often lead to envy and discontent.

Antidote: Instead of comparing yourself to others, work to develop gratitude for what you have.

5. Gluttony: Falling into debt. If money saved is financial progress, money borrowed is often a step backward. As I’ve mentioned before, going into debt to pay for today’s consumption is the path to financial slavery.

Antidote: With the exception of taking out a mortgage or student loans, if you don’t have the cash to pay for something in full, save up until you do.

6. Impatience: Claiming Social Security early. Delaying benefits can be one of the best financial deals out there.

Antidote: Make an informed decision about when to claim Social Security benefits. A great place to start is Mike Piper’s excellent book, Social Security Made Simple.

7. Sloth: Remaining financially illiterate. This sin is particularly costly because it leads to so many other financial sins.

Antidote: Read at least one good financial book a year. Start with If You Can by William Bernstein, which is both a masterpiece and a quick read. It’s also free—just Google it. If you learn to be a do-it-yourself investor, you can save a boatload in fees over your lifetime.

8. Fear: Being unable to enjoy your retirement because of irrational worries about running out of money. Spending down a nest egg requires a mindset that’s completely different from that required when saving for retirement. Drawing down a portfolio is also subject to a unique set of risks, such as sequence-of-return risk and longevity risk. I suspect a large number of retirees allow such fears to cast an unnecessary shadow over their golden years.

Antidote: If you’ve saved enough for retirement, don’t let irrational fears rob you of joy. Adjust your asset allocation as you approach retirement—by reducing your portfolio’s risk level—so an unlucky “sequence of returns” doesn’t meaningfully impact your retirement. Learn to “roll with the punches,” spending a bit less when the markets are stingy and more when returns are generous.

9. Imprudence: Failing to insure. It’s like playing Russian roulette with your financial life.

Antidote: Insure the big stuff, by purchasing home, health, auto, disability and life insurance.

10. Negligence: Buying cash-value life insurance instead of term insurance. Term is the least expensive and most appropriate form of life insurance for the vast majority of people.

Antidote: When dealing with insurance agents or financial advisors who hawk insurance products, always be on your guard—because you’ll likely be pitched the products that pay them the highest commissions.

11. Hyperactivity: Being addicted to online shopping. The convenience of online shopping is matched only by its detrimental effects on our ability to save and to delay gratification.

Antidote: If you’re hooked on internet shopping, consider cancelling your Amazon Prime membership, deleting offending apps from your smartphone and unsubscribing to emails from online merchants. Adopt a “sleep on it” rule for online purchases, so you avoid impulse spending.

12. Aimlessness: Not having a budget or rainy-day fund.

Antidote: Adopt a super-simple “pay yourself first” budget. If you don’t have a rainy-day fund, use your monthly savings to begin building one.

John Lim is a physician and author of “How to Raise Your Child’s Financial IQ,” which is available as both a free PDF and a Kindle edition. His previous articles include 12 Investment SinsHow Low? Too Low and Solomon on Money. Follow John on Twitter @JohnTLim.

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