Do you consider yourself to be a ‘sinner’ when it comes to finance? The Ten Commandments are there to protect us from harm, but many people view them as as a way of limiting their freedom. The same principle applies in finance, when you go against principles that have been tried and tested, it like swimming upstream and at the end of the day, you will eventually lose. To avoid committing a financial sin, always try to listen to the advise of financial experts, and to be on the same side, do you own research so that you are able learn, and this is by conducting a SWOT (strengths, Weakness, Opportunities and Threats) analysis about yourself. The following article by Laura Rowley illustrates some of the financial ‘sins’, once committed will eventually lead to financial debt.
Last week, in an interview with the Vatican newspaper L’Osservatore Romano, Monsignor Gianfranco Girotti, a close ally of Pope Benedict, unveiled a new list of deadly sins for the modern era. Girotti suggests that Catholics go beyond the “individualistic dimension” of sins like envy and sloth and avoid modern social evils such as dealing drugs and polluting the environment (or, as the headline in Britain’s Daily Mail blared, “Recycle or Go to Hell”).
I get Girotti’s vibe. A cradle Catholic, I usually attempt an individualistic sacrifice for the 40 days of Lent (giving up chocolate, say). This year, I’m trying to maintain better control of my attitude, and pause thoughtfully instead of immediately reacting when provoked (such as not yelling at my daughter when her math tutor told me she wrote “I would do anything to get out of here” in the “name” space at the top of her fractions worksheet).
Incidentally, one of the “new” sins is exploitation of the poor by the über-rich, which is not so new (see, well, about 90 percent of the Bible) — but something that any Catholic involved in marketing credit cards to people with no incomes should ponder seriously.
In any case, I was inspired to create my own list of seven deadly sins. Commit these violations, and you’ll create a financial hell on Earth for yourself:
Sin No. 1: Failing to identify what thy money is for.
Yes, making money is to meet life’s needs, like shelter, clothing, and buying enough Thin Mints so your Girl Scout achieves the 100-plus-boxes badge. (Good thing I don’t always give up chocolate for Lent.) But then what? What are you here for? What do you really value?
If you never take the time to figure that out, and don’t set priorities and write down specific goals that you want your money to help you achieve, I guarantee you’ll never run out of ways to squander your cash. Click here for some questions to help you get started with identifying your values.
Sin No. 2: Not living within thy means.
I live within my means (no debt except a low-interest, fixed-rate mortgage) and save prodigiously for retirement and college. But just as Jimmy Carter committed adultery in his thoughts, I haven’t been living within my means in spirit because I endlessly surf real estate websites and ogle houses I can’t afford.
The temptation seeps into the unconscious through the subliminal seduction of television, advertising, fashion, the neighbors’ kitchen renovation, the number of luxury cars in the parking lot at work, or, in my case, a few mouse clicks.
The secret to avoiding this sin: Get a budget. Some people track their spending with a pencil and paper; some use Quicken software; I use an online tool called Mvelopes. It doesn’t matter what you use. Find a tool that prevents you from spending more than you earn. (And shut out tempting media. Surfing real estate websites prevents me from appreciating my abundance, and makes me sort of cranky.) This will deliver you from the vice of revolving debt and the eternal punishment of exorbitant interest rates.
Sin No. 3: Believing that material wealth will solve all thy problems.
People place a lot of symbolic meaning on money. We think money is power, status, security, freedom, or a host of other things. For instance, I once interviewed an investment banker who had sacrificed everything for her job — partly because a childhood experience made her think money was the same as respect.
When she was eight years old, she was standing on a field where her dad was coaching a football team. She told me, “I kicked the ball really high. He looked at me and said, ‘What a waste you’re a girl.'” She vowed to show him that girls can do anything boys can do. So she muscled her way into Wall Street, and impressed her father with every promotion. But the unhappiness returned each time, because money didn’t solve the problem — her feeling that her father didn’t respect her for who she was. And she would never make enough cash to fill that hole.
I’m not naïve. Money (especially investment-banker-sized money) can buy a measure of freedom and security and power. But money itself is none of those things. If freedom is a value, you have to think about the experiences, people, and qualities of life that make you feel most free, then be creative about making that vision a reality. It may cost less than you thought.
Sin No. 4: Shopping while feeling sorry for thyself.
A new study finds that people who spend money while sad or self-absorbed unconsciously overpay. This differs from the more well-known phenomenon of retail therapy.
In the study, conducted by researchers at Harvard, Carnegie Mellon, Stanford, and Pittsburgh universities, one group of participants watched a sad video about the death of a boy’s mentor, and then was asked to write about how experiencing a similar situation would affect them. A separate group watched a National Geographic special about Australia’s Great Barrier Reef and was asked to write a list of their daily activities.
Both groups were then given the opportunity to bid on a sporty, insulated water bottle. The gloomy bidders offered as much as 300 percent more. In their paper for Psychological Science, the researchers suggest “that when self-focus is high, sad individuals experience an implicit devaluation of the self, which in turn triggers increased valuation of new commodities.” (In other words, when it comes to your wallet, no looting while brooding.)
Sin No. 5: Not saving for college because thou expects financial aid (or a higher power) to take care of it.
A study by AllianceBernstein Investments found that 87 percent of parents believe scholarships and grants will pay for at least part of their children’s undergraduate expenses. But 92 percent of financial aid directors interviewed say parents overestimate what their children will receive. Moreover, 58 percent of families spend more on dining out and vacations than on saving for college.
If this is you, open a state-sponsored 529 plan with as little as $5. Your savings will grow free of federal and state taxes, and withdrawals are federally tax-free if used to pay for qualified education expenses.
It’s far cheaper to save than to borrow, explains Mark Kantrowitz, founder of the informational college website FinAid. If you start when your child is 8 and save $200 a month for 10 years at a 6.8 percent rate of return, you’ll accumulate about $34,400. If you borrow that amount at 6.8 percent interest instead, you’ll pay back $396 a month for 10 years. Bottom line: Save in advance, or pay back twice as much afterward. (And 529 savings barely affect financial aid eligibility. See my blog for an example.)
Sin No. 6: Receiving a whopping refund after filing thy tax return.
Thou shalt not give Uncle Sam a year-long, interest-free loan. Instead, ask your employer for a new W-4 form and adjust your withholding to reduce the amount of taxes taken out of your paycheck. (You may have to fill out the worksheet on page 2 of your W-4. For help, check out the IRS’s online withholding allowance calculator.)
Then automatically invest the extra take-home pay every month in a mutual fund, and get your money working for you all year-long.
Sin No. 7: Not saving for thy golden years.