Yahoo Finance Experts Review Reddit’s Worst Financial Decisions (And Help You Avoid Them)
Reddit is a place where people talk about real life — the ups, downs, wins and losses. Financial losses are a common topic. There are minor mistakes that are easy to recover from, and there are big ones that can set you back for years. Finance experts review some of Reddit’s worst financial decisions and offer advice on how you can avoid them.
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Reddit also talks about the biggest ways people waste money.
Bought a TV Instead of Fixing the Roof
One Reddit user shared about someone who bought a TV during Black Friday sales instead of using the money to fix a significant leak in their roof.
Todd Bryant, founding partner and financial planner with Signature Wealth Partners, LLC, said, “To the person who bought a TV on Black Friday instead of fixing their roof: It’s important to have a budget and stick to your budget every month.”
A budget can help you plan for unexpected problems and save for things you want and need.
“It’s also important to audit your finances regularly,” Bryant said. “I recommend clients keep separate bank accounts for bills and other necessities (like fixing a leaky roof) and then a different account for surplus/discretionary spending (like a TV on Black Friday).”
Having separate accounts can trick your brain into thinking you have less money than you really do have, he explained, thus reducing the impulse to splurge.
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Blew $30,000 on a Yankees Game
One Reddit user reported that a fraternity brother came into an unexpected sum of $30,000 and bet the entire lot on a losing Yankees game.
To this sort of problem, Bryant warned, “Sports betting and gambling are extremely dangerous habits. For every one person you hear about with some big payout from sports betting, there were thousands (if not millions) who lost a lot on that same bet.”
To people who enjoy betting and gambling, he recommends making sure the amount you are betting wouldn’t harm your finances greatly if you were to lose it.
“Always be prepared to lose the whole thing,” he said, “as that’s the likeliest scenario.”
Borrowed From 401(k) To Pay Rent, Then Bought a $60K Car
Because retirement is often a long way off for some folks, that money may seem like it’s ripe for the taking. However, one Redditer borrowed against a 401(k) to pay rent, then bought a $60,000 car two weeks later.
“This one really makes me cringe,” Bryant said. “A 401(k) loan should really be a last resort for someone and hopefully they never need to do it to pay rent.”
Before borrowing, at a hefty penalty, from a retirement account to pay for other expenses, Bryant recommends looking into alternative housing with lower rent or buying a used car.
“If you cannot afford your rent and need to loan yourself the money from your retirement,” he said, “you definitely do not need a $60,000 car.”
Paid for a Motorcycle on Craigslist Sight Unseen
Another Redditer got excited about a motorcycle for sale on Craigslist and didn’t blink when the seller asked for $1,000 up front before even delivering the bike. No surprise: She was out money with no bike to show for it.
Bryant warned there are as many scammers as there are sellers.
“Never, ever send the money to someone in advance of the transaction,” he said. “I also recommend never meeting at night, never meeting at each other’s houses and always dealing solely with cash. I always meet in front of my local police station.”
Took Out a Loan To Order Pizza
One Reddit user was so desperate for pizza, the person took out a loan to finance this craving.
Glenn Sanger-Hodgson, a registered investment advisor and founder of Shonan Gold Financial LLC, said, “Lots of people take out loans to make purchases every day by using their credit cards.”
But a loan, with payment terms and interest, is a lot more serious.
“In general, it’s only a good idea to take out a loan to pay for something durable that will last longer than the repayment term of the loan,” Sanger-Hodgson said. “For example, if you have a five-year auto loan but expect to use the car for seven to 10 years, that’s a good start. But, making payments for years on a pizza you only enjoy today — or tomorrow if there’s leftovers? That’s not such a good idea.”
Gave Up on Free Education for Kids
One person on Reddit had a coworker with five kids who worked at a university that offered free education to children of employees who had worked at the school for 15 years. The coworker quit at 14 and a half years.
Sanger-Hodgson recognizes that burnout is real but suggested, “Even if you find yourself burned out at your current employer, there are often ways to figure out how to make employment more bearable, especially if you only need to tough it out for six months.”
Some possibilities could include asking for a transfer, requesting a different schedule or advocating for more autonomy in your work. These are all “simple things that can radically change your employment dynamic for the better,” he said.
Applied for a Mortgage Based on Overtime Income
One Reddit user’s coworker had been working overtime for years to save up for a house. When he applied for his home loan, he used the overtime income rather than his regular salary to apply for the mortgage. Ultimately, he had to work so hard to keep the house, his wife divorced him.
Ricardo Pina, founder of The Modest Wallet, said, “When calculating a mortgage payment and budgeting for expenses, it’s important to take into consideration your regular income. It’s not wise to base your budget solely on overtime pay, as no one can guarantee that you’ll always be able to work the same amount of overtime or even find additional overtime opportunities. Therefore, it’s important to create a budget based on your regular income and factor in any potential overtime pay as an extra bonus.”
Another important tip to keep in mind when saving up for a house is to make sure you’re not overspending on your lifestyle, Pina said. “Living within your means is key.”
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This article originally appeared on GOBankingRates.com: Experts Review Reddit’s Worst Financial Decisions (And Help You Avoid Them)
