March Madness of Top Personal Finance Mistakes – Quarterfinals
It’s that time of year again. March Madness is upon us and in just a few short days the NCAA will announce the field of 68 teams that will compete in college basketball’s big dance. In the spirit of March Madness, we wanted to take a look at the top financial mistakes made consistently by young professionals. Over the next four weeks we’ll narrow our top nine financial mistakes down to uncover the number one financial mistake young professionals make and ultimately how to fix it.
Play in Game: #9 Seed vs. #8 Seed
(8) Going to Grad School Unnecessarily
Some analysts were surprised to see the #8 seed make the tourney, but as the cost – and more importantly – the value of a graduate degree continues to be called into question, we aren’t surprised that this mistake made it into the tourney. In fact, few would argue that taking on a mountain of debt is not advisable if there isn’t a clear plan on how the degree will benefit a career and a young professional’s long-term earning potential.
(9) Paying Excess Fees on Your Investments
Despite being the last seeded mistake in the tourney, don’t underestimate the negative impact of paying excess fees over the course of a lifetime on the growth of your hard earned investment dollars. In fact, there are few things more likely to produce poor investment returns over any period of time than excess fees. Look no further than recent research by Morningstar which found in every single time period and data point tested, low-cost funds beat high-cost funds.
#8/9 Seed vs. #1 Seed
(1) Not Leveraging Your Most Valuable Asset – Time
The top seed entering the tourney is the standalone favorite to win the big dance in 2016, despite some formidable competition. Albert Einstein once said, “compound interest is the eighth wonder of the world” which is quite a statement from arguably one of the smartest people to grace the planet. Time will tell in this year’s tourney if he is right, but certainly few would argue with the fact that starting to save early to take full advantage of the compounding effect of your money is a slam dunk.
(8)/(9) Play-in Game Winner
See above.
#7 Seed vs. #2 Seed
(2) Living with No Budget
Some expected this mistake to take the top seed in this year’s tourney. It seems like a no-brainer but many young professionals underestimate the impact of not living with a budget. Few people do it, but those that do are more likely to save, feel confident about their money and reach their financial goals. Time will tell if the #2 seed can put itself in a position to knock off the top seed in the tourney at some point down the line.
(7) Not Building Strong Credit
The #7 seed in this year’s tourney is our dark horse, because of the sneaky—and negative—impact it can have on a young professional’s financial life. We’ve seen it all this year with the #7 seed, including carrying a credit card balance for nearly three months back at the start of the season to missing a car payment in February, likely bumping this seed up from the play-in game.
#6 Seed vs. #3 Seed
(3) Being Underinsured or Not Insured At All
Despite being trounced by the #9 seed earlier in the year, the #3 seed in this year’s tourney has been on a tear ever since. The financial impact to young professionals, especially those with families and young kids, cannot be denied. In fact, with estimates projecting nearly one in four young professionals will become disabled in some capacity before retirement age, being underinsured, from both a life and disability standpoint, is a formidable threat to run the table in 2016.
(6) Living Like a Kardashian (When You Aren’t One)
Before the advent of social media, this was more commonly referred to as “trying to keep up with the Joneses” a.k.a. the proverbial neighbor. Unfortunately in today’s world where we all have a window into the lives of celebrities, it far too easy to fall into the trap of trying to keep pace with those with dramatically different financial situations. Living beyond your means, especially as a young, busy professional can be detrimental because it can lead to excess spending, taking on debt, and ultimately focusing on things in life that aren’t truly meaningful.
#5 Seed vs. #4 Seed
(4) Not Having a Plan for Your Student Loans
It’s a fact. Nearly 70% of college graduates now leave school with student loans, averaging nearly $28,000 in debt. The #5 seed in this year’s tourney is a formidable threat given how impactful starting with a mountain of debt can have on a young professional’s life. On top of this, many young professionals with student debt don’t have a plan in place to tackle their debt through Income-Based Repayment (IBR) plans, loan consolidation, or expediting payments.
(4) Not Being Diversified with Your Investments
There are few things more important to long-term investment success than adequate diversification. Yet so many young professionals get this wrong. After an impressive run in last year’s tourney, the runner-up in 2015 is back with vengeance. Despite a slow finish to the regular season it will be interesting to see if this mistake can make another run at the top financial mistake for young professionals in this year’s tourney.
Come back next week to see how the tourney has progressed and which teams will be advancing to the Final Four in this year’s Top Financial Mistakes for Young Professionals tourney!
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