WOOCS 2.1.5.4

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If Financial Stupidity Was A Crime…

If stupidity was a crime, well, we would all be in jail. We have all made stupid financial mistakes in the past and some of us are still making them now. Sadly, some people are going to carry on their financial stupidity through out their lifetime! (Ouch) I hope that won’t be you.

So, let’s stop for a moment and consider some of the most popular stupid financial blunders people commit and how to avoid or deal with them.

  •  Loans to family and friends:

We all are probably guilty of this. I have loaned money to and from family and friends in the past. In most cases, especially when I was the ‘lender’, it was a disaster. For some reasons, legitimate or otherwise, they never got around to paying back

They might have lost their job, business might have gone bad or their mother died, whatever the reason, all I know is that I did not get my money back.

I’m wiser now! The other day someone asked me to lend them £2,000 to pay some tuition fees. My reply was very simple: ‘I don’t lend money because I am not a bank. I can give you £200. It will be a GIFT, you won’t have to pay me back and I won’t be out of pocket if you don’t pay me back!’

  • Opting out of employer’s pension scheme

These days most employer-sponsored pension scheme are contributory, e.g your employer will pay in 6% of your salary but only if you pay in 3%. Many young employees ignorantly decide not to join and hence loose out of their employer’s contribution. I was talking to a guy recently who told me he couldn’t afford to pay 3% of his £30,000 salary (that’s just £75/month) into his employer pension scheme. But when I pointed out to him that he was loosing out on 11% of his salary i.e £3,300 a year,  you should have seen the look on his face. Thankfully, for his at least, he joined that same month.

  • Joint loans with family and friends

So your best friend wants a loan from the bank but their credit isn’t very good. They ask you to co-sign the loan with them and you did. Few months later, they can’t afford the payments and now the bank is after you! ‘My friend spent the money, not me! Why should I pay the bank?’  Well, let’s clear this up, if you take out a joint loan with someone, you are both ‘joint and severally liable’  for the repayment of the whole amount. This means that the bank can come after either or both of you and if your friend/family doesn’t have any money, guess who the bank will come after? YOU!

  •  Sending money ‘home’ to build a house

This is a classic one, if you live in a different country from your country of birth. Where I come from, people abroad send money to a relative or friend to help them buy or build a house in their home country. The fact is that 9 out of 10 cases, something goes wrong.  Someone once shared with me ‘I sent £15,000 over the last year or so. They assured me work was going on in earnest on the site, they even sent me pictures but when I turned up… there it was an empty plot of land!’’

  •  (Re)Mortgaging the house to raise capital for an ‘investment’

A client recently told me about how they borrowed £80,000 on their mortgage-free home for an investment opportunity in development property in Spain.  As it turned out, the ‘investment’ turned sour as the developer could not complete the project. They lost all their money and ended up with a mortgage of £80,000 they now need to service. At the age of 63, this is not good. They wanted to know if they should spend another £10K to hire a lawyer to go after the developer. My advice: cut your losses, downsize by buying a smaller house and write of the £80,000 as STUPID TAX.

Learn this NOW, mortgaging your house to raise capital for a business, or any other investment for that matter is a VERY BAD idea!

Can you relate with any of these? What is the worse financial mistake you have ever made? Please share, you might just save someone a fortune!

 

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