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How the 7 Deadly Sins Can Send Your Finances 'South'
Best of DailyFinance: The Week in Review (June 16-22, 2014)
In investing, it's dangerous to lust after the hottest and most exciting stocks, as they're often overvalued. If a company is always in the news because of how rapidly it's growing, you're not the only one thinking of investing in it, and many others have already done so, bidding up the price. It's often better to go for boring, tried-and-true companies, such as the ones selling things we're likely to keep needing, like shampoo and electricity. Consider dividend payers, too. They may not grow as rapidly as younger, smaller, outfits, but they'll generally pay you in good times and bad. Meanwhile, it's also dangerous to lust after fancy cars and huge houses and the latest electronics, if you can't afford them.
Too much of a good thing can be a bad thing, even when it comes to money. Sure, lots of cash is good. But lots of credit cards can be bad, if they're giving you more buying power than you can afford to indulge in, and you don't have enough discipline to resist them.
Too many stocks in a portfolio can be bad, too, as you won't be able to keep up with the progress of each company, and thus might not notice when one or more of your holdings starts to become less promising. Too many cars or houses are expensive to maintain and insure. Too many pieces of clothing in a closet? You don't wear many of them, and they fall out of fashion before you can get your money's worth out of them. With many things in life, it's best to be focused.
Greed can lead us to make dumb decisions, such as jumping into an overheated stock market because we're tired of seeing other people making a lot of money on stocks. Greed can induce us to rationalize poor decisions, too. ("The market is bound to keep rising." "Let's just spend this money we inherited on travel -- we can start saving for retirement next year.")
Greed can also lead us to take high risks for unlikely high rewards -- such as when we buy lottery tickets or invest in penny stocks that are more likely to go down than up.
This sin often seems innocuous; after all, it's only making us not do things. But many times, we don't just put off an important task for a day or two -- we never get around to doing it. That kind of procrastination can be downright dangerous when it comes to personal finances.
Here are just some of the many things that we shouldn't be slothful about:
having a retirement plan;
opening and regularly funding retirement accounts,
researching stocks before buying them,
paying bills on time,
saving for that down payment on a home,
saving for Junior's college expenses, tending to our estate planning (drafting a will, durable power of attorney, living will, etc.),
regularly re-evaluating our portfolio to see if we need to make any changes.
Wrath can come into our financial lives when we're in relationships where both parties are not on the same page. You might be good at saving, while your spouse is "good" at spending. This can lead to one or both of you being resentful and angry. Avoid wrath: Open up the lines of communication about money early and often.
Being scammed financially can also lead to anger, and that, sadly can happen to any of us. So it's smart to get savvy about common scams and to be wary of any financial come-ons and too-good-to-be-true "opportunities. Otherwise, you're liable to end up angriest of all at yourself.
It's only natural to look at what others have and to wish for some of it. But before you start trying to keep up with the Joneses, it's worth remembering that while you might admire your neighbor's fancy new car, he may not be able to afford it either. Lots of people who seem to be doing well are actually neck-deep in credit card debt, or headed in that direction. Envy can lead you to live beyond your means, which sets you up for financial disaster.
Finally, there's pride. It's at work when we're overconfident about our investing abilities. Thinking we're investing geniuses, we might not sufficiently research a stock or investment -- or to fail to keep an eye on it after an initial bounce. Excessive pride can also lead us to buy status symbols, such as an expensive car, coat, or gigantic flat-screen TV, in order to make ourselves look good to others.