6 Deadly Financial Sins

Source : SiliconIndia:16 feb 2012

To maintain finance, it’s good to know what you should do with your money but tips what you shouldn’t do will make you smarter financially. Here are six deadly financial sins – which you should never commit.

Co-signing a Loan

When you co-sign with your partner for a loan, it means you are agreeing to pay if the partner fails to pay. The lender may catch hold of you if your partner doesn’t make payments. Even if you are sure you could cover the payments, experts’ advice that you should step back and ask why you are being asked to co-sign. Is it because the borrower has a bad credit score and sketchy financial history? Or the borrower is looking forward to borrow a huge amount? Figure out the answers before you sign, rather drop the idea because it is no point of being accused because of your partner’s bad decision.

Buying Variable Annuities

You shouldn’t buy these variable annuities, especially in a retirement account. These annuities are too expensive but plain as simple as well. These variable annuities are a better deal for the agents rather than consumers. Relatively you should build your own investment accounts through low-cost exchange-traded funds or no-load mutual funds.

Designating a Minor as a Life Insurance Beneficiary

Life insurance benefits cannot be paid to minors. If you make such mistake then ultimately, a judge will oversee how the funds are distributed to your young ones. To make sure this doesn’t happen, you must set up a revocable living trust and make the trust the beneficiary of your life insurance. In this same trust, you can include the proceedings to be used by your minors.

 

Investing in a Long Term Bond Funds

Bond funds are never a good help for investors. In an individual bond you can hold the investment to maturity and be assured that you will get your principal back (in case you don’t fall into a default), but in a bond fund no finite maturity date is there, and most funds are actively traded.

Especially it is not good times to invest in long term bond funds, as interest rate are so low. Rate might rise in future, even if it’s not in 2012. When rates will raise, the longer the maturity of a bond, the bigger will be the decline in the bond’s price. The bond prices are inversely proportional to the yields it fetches. When yields rise, prices drop.

If you own an individual bond, you can at least make the decision to hold on until it matures, so that you can receive all your principal back. But a bond fund may sell bonds at those lower prices, locking in a principal loss.

Defaulting on Student Debt

Even if you fall into extreme financial hardship and file for bankruptcy, the student debt loan will not be exempted in bankruptcy. Falling into a default debt can lead you to have your wages garnisheed that is the borrower gets to take money out of your paycheck to make good on your debt.

If you have a student loan, no matter how financially stressed you are contact your borrower and let him know about your opinions. If the loan is from a government bank, then you have a variety of repayment plans which will reduce your monthly payments as well as student loan deferment and leniency during periods of economic difficulty.  

 

Not having four essential documents

These four documents are a must for a responsible estate planner.

· A will

· A revocable living trust

· An advance directive - The advance directive is a document which includes your medical intervention if your are unable to express those wishes yourself, along with a durable power of attorney for health care in which you designate the person who will advocate on your behalf to make those wishes known.

· A durable power of attorney for financial matters which includes the incapacity clauses. This allows a person of your choice to step in anf make financial decision on your behalf if you can’t make them yourself.