“We all mishandle our money from time to time — whether it’s an impulse buy, a forgotten bill or just poor planning. But there’s a big difference between going shopping and realized you shouldn’t have — and making a serious financial mistake that can haunt you for years, maybe even for a lifetime. So to help you avoid getting into a situation you may regret, we’ve put together a list of some financial mistakes that come with the biggest consequences.”
Financial regrets. We’ve all had a few. But there’s a big difference between making an impulse purchase that you second-guess the morning after and making a major decision about your money that could haunt you for a lifetime.
We reached out to dozens of financial planners and personal-finance experts for their views on some of the most consequential mistakes people can make with their money. We also offer advice on fixing these mistakes — or avoiding them altogether — so you’re not left ruing the day when you blew your budget, wiped out your savings or otherwise sabotaged your financial future. Take a look.
1. Borrowing from your 401(k)
Taking a loan from your 401(k) can be tempting. After all, it’s your money. As long as your plan sponsor permits borrowing, you’ll usually have five years to pay it back with interest.
But short of an emergency, tapping your 401(k) is a bad idea for many reasons. According to John Sweeney, executive vice president for retirement and investment strategies at Fidelity Investments, you’re likely to reduce or suspend new contributions during the period you’re repaying the loan. That means you’re short-changing your retirement account for months or even years and sacrificing employer matches. You’re also missing out on the investment growth from the missed contributions and the cash that was borrowed.
Keep in mind, too, that you’ll be paying the interest on that 401(k) loan with after-tax dollars — then paying taxes on those funds again when retirement rolls around. And if you leave your job, the loan usually must be paid back within 60 days. Otherwise, it’s considered a distribution and taxed as income.
Before borrowing from a 401(k), explore other loan options. College tuition, for instance, can be covered with student loans and PLUS loans for parents. Major home repairs can be financed with a home-equity line of credit.