If you really want to damage your financial future, then forget lightweight indiscretions like buying coffee every day and getting your hair colored in a salon. Those meager indulgences will handicap your savings and lower your investment returns, but only on a time scale measured in decades. If you want to do some real damage to your financial future, then you’re going to have to step up your game beyond niggling amateur mistakes.
The people who end up as true financial trainwrecks, the ones who have the lifeless husk of their financial life sucked dry by lawyers and the bankruptcy court, have real commitment. To make it to the gold medal round of the bankruptcy world, you’ll have to not only make mistakes — you have to make big, bold, epic mistakes. You have to stumble blindly through the personal financial landscape and exercise a lot of active denial to make it in the big leagues.
Rack Up Unsecured Debt
Every time you swipe that credit card you’re letting a bank or card company lay claim to your future earnings; money that you may not even have in the bank yet. You’re putting Chase, Capital One, and American Express in front of every other expenditure. Do that long enough, and you’ll become one of their golden customers, the people who carry a balance month to month. Now you’re paying interest every month on that balance, and the longer that goes on the deeper the hole becomes. Even if unsecured debt doesn’t kill you right away, it will become a persistent infection of your finances, an opportunistic disease waiting for another loss or weakness when it can start spreading like financial cancer.
Borrow From Your Retirement Savings
Borrowing from your retirement savings is the trifecta of financial hits. It incurs financial penalties and opportunity costs, and creates an obligation on future earnings. If you’re borrowing money from retirement to literally save your life, you get a pass on that one. Any other reason is pure folly.
Let Your Money Slack Off
Take the safe investment route and stick your money in a savings account, CD, or money market fund — and leave it there for years. Don’t even explore municipal bonds, preferred share funds, or the wealth of other low-risk options to keep your money working. Definitely avoid the stock market, foreign market index funds, and dividend paying stocks, because someone you know put their kid’s college fund into the stock market in 2007 and their kid had to suffer the indignity of community college.
Don’t Have an Emergency Fund
There are lots of good reasons people give for not having an emergency fund — and they’re all financially deadly. You can get away with not having an emergency fund once, maybe twice, by racking up unsecured debt. Keep playing that game long enough and, sooner or later, the odds are going to catch up with you.
Divorce is the great crippler of finances, particularly when kids are involved. Definitely avoid a prenuptial agreement, which can provide no fault protection even if you don’t live in a no fault state. Prenups force both parties to provide a complete disclosure of their finances and financial obligations and sign them in front of a notary. It’s so much better to find out about your soulmate’s criminal record and gambling debts after you tie the knot, so you’re not tempted to put off taking the vows until the other party cleans up their finances. Just take the plunge blind and hope for the best, what’s the worst that can happen? Divorce, a lifetime of debt, financial ruin, and some guy nicknamed Crusher who says you still owe him money.
This is the hard one because everyone wants to live and, on that one point, your financial future really does take a backseat. Medical debts are the number one reason for bankruptcy, accounting for 62% of people in bankruptcy court. Even having health insurance is not total protection, as 78% of filers had some type of coverage. The ways to make medical debt a financial disaster are to skip the second opinion, have poor medical coverage, no supplemental coverage, no savings, no investments — and don’t shop around for lower cost treatment options.
Not all financial disasters are avoidable; time and chance happen to everyone. But there is much you can do to narrow those odds. If you think about things in advance and manage your money wisely, you can build up a pretty sizable cushion against potential disaster.