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Sunday, 26 November 2006

The Four Deadly Sins of Personal Finance

An very interesting article in the NYT reminded me, again, of the four deadly sins of personal finance:
1. Greed - "just a little bit more" can easily become "too much", whether it be chasing higher investment returns, pinching pennies, or getting "top dollar" when selling or "a bargain" when making a purchase. Remember the old adage that if it "looks too good to be true it probably is". When looking for "overlooked" investment opportunities it's also worth bearing in mind that there are several billion other human beings out there, millions of whom are also looking for the "overlooked".
2. Sloth - most people apparently spend more time planning the annual holiday than they do on planning their finances. Aside from generally financial planning, you also have to put in sufficient effort to analyse each potential investment on its merits. Buy things purely on the say-so of a friend or relative and you will have no-one to blame but yourself if things don't work out.
3. Trust - yes, BLIND trust can be a very bad thing. As they say in auditor-land "trust but verify" - don't take anyone's word for something that you could verify. And if there is nothing to back-up someone's verbal assurance, flag this mentally as having an "unknown amount of risk"
4. Envy - just because every one else seems to be making a fortune investing by in "X" doesn't mean you should try it. It doesn't even mean that they are actually making any money from "X". Not only can appearances be deceiving, I'd say that they usually are deceiving.

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