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As a high school student, I was a bit of a nerd (I still am today!). Though I was well-rounded – a decent athlete and very active in music and student government – I rarely went anywhere without a book in hand. I read a wide variety of authors, including Rand, Twain, Chaucer, Dante, and Steinbeck, among dozens of others.
In hindsight, I enjoyed reading so much because of the fascinating characters and moral dilemmas contained in each book. After learning about the Seven Deadly Sins – hubristic pride, greed, lust, malicious envy, gluttony, wrath, and sloth – in ninth grade honors English, I began to take greater notice of character development and general character flaws. I also began to notice how these flaws manifested themselves in my friends and even my own life.
As a financially-conscious adult, I now see that these sins are ever present in the day-to-day financial decisions of the average person. Rather than attempt to isolate direct correlations between the aforementioned Seven Deadly Sins and common financial mistakes, I wish to present seven of the top financial sins which have been on my mind in recent weeks.
–Payday loans. I grew up in an area of the Midwest which painted an accurate picture of the lives of the “haves” and “have nots.” My family fell somewhere in the middle as an average middle class family. However, the occasional trip through the seedy parts of town provided shocking glimpses of life on the other side: low income housing, gang violence, pawn shops, and payday loan centers.
I am optimistic that predatory payday loans may soon be a thing of the past, given Google’s crackdown on payday loan advertisements. Finally, awareness is growing about this criminal cycle of debt and the outrageous interest rates charged by payday lenders. You can read more about this problem here.
–Spending more than you earn on a long-term basis. This needs little explanation, as the math is quite simple. Unless you are poised to receive a large inheritance or other similar windfall, a negative savings rate is a sure-fire to place yourself in financial peril.
–Borrowing money from a retirement account. Unless you are facing bankruptcy or foreclosure, borrowing money from your 401k or other retirement accounts can be disastrous. In doing so, you are failing to make financial progress, continuing to overspend, and weakening one of the greatest partnerships of all: time and compound interest.
–Failure to have a will in place. I dislike being the bearer of bad news, so I will make this very brief: There is a 100% chance that you will die, and getting a will in place won’t change these odds in any way. Given this undeniable fact, it is borderline inexcusable for anyone with typical assets and liabilities not to have a will.
–Buying or leasing brand-new vehicles. Unless you are a millionaire or otherwise financially-independent (FI), purchasing a brand-new vehicle represents a significant and immediate loss the moment you drive off the lot. Most new vehicle purchases are motivated by pride or jealousy. There is nothing wrong with purchasing a nice, well-maintained used vehicle.
Related: The Car Lease: A Formidable Villain
–Whole life insurance. In my opinion, whole life insurance is a scam. On the surface, a slick salesperson can make it sound like a great deal by dropping words and phrases like “cash value” and “guaranteed to remain in force.” However, term life insurance is a much greater value. For most healthy adults, a sizeable 20 year term policy is available for little more than the cost of a meal at Applebee’s. The best part: low monthly premiums will allow you to invest the money you save and become self-insured by the time your term ends.
–Lack of a financial plan. In many ways, I am an open book when it comes to discussing my finances. Mrs. Superhero and I are believers in stealth wealth, which means you won’t find us disclosing our incomes our value of assets any time soon. However, I am always willing to discuss our financial game plan with others. By being transparent in this way, we have learned a lot from other people, made changes to our plan after careful consideration, and hopefully helped a handful of people be more intentional with their finances.
At the same time, I am continually amazed by the number of people I speak with who do not have a defined financial plan. To make matters worse, these people are typically unaware that this is a problem. With automated tools like Mint and Personal Capital, among countless others, there is no excuse for the failure to have a financial plan in place.
Readers, what other financial sins should be added to this list? Which one do you think is the worst?