Are you making these disastrous financial mistakes?

We all make financial decisions, every day in fact. It’s only natural that some of our decisions could have been better. However, when bad decisions persist they cease to be simply bad decisions (or lessons if you like) and become major obstacles to financial success.

Here’s four potentially disastrous actions.

Delaying

We’re all tempted to delay saving for retirement. There’s always something on the horizon that we need, deserve, or just really want. When we give in, the problem gets big. Real big.

You see, for every decade delayed, you’ll likely have to save twice as much. Compounded interest is a powerful natural force, one that should be harnessed rather than struggled against.

So start saving now, or come up with an ambitious plan to get out of debt so you can start saving for retirement. Someday, you’ll look back and thank yourself for your diligence.

Declining

It’s tempting to turn down an employer’s retirement match when life throws curve balls at you (like an unexpected baby, or serious medical emergency). But this can be a big mistake if stopping contributions becomes a habit.

Your employer’s match is part of your employee benefits package. This is why you work, and anyone who needs to work cannot afford to turn down even part of the company match, but as many as 20% of 401k participants do.

Destroying

Cashing in retirement accounts must be very tempting, because a lot of people do it even-though it destroys a huge chunk of their wealth.

People often withdraw money from their retirement funds for a good reason like a bigger down-payment or to get out of debt. Unfortunately, the government taxes you heavily for prematurely accessing your money. For example, an early withdrawal from a 401k is slapped with a 10% penalty and is taxed at your tax bracket.

At it’s worst, a $10,000 withdrawal can turn into $5,500 (a tax of 45%)!

If you are considering tapping retirement funds to get out of debt, consider this: the majority of people who take this approach end up right back in debt a few years later. And everyone who takes this approach pays the hefty tax penalty. A better approach is to change your behavior, digging yourself out the hard way, spending less than you earn. You’ll be far more likely to avoid debt in the future.

Dumping

Dumping stocks can be tempting during periods of market turmoil. Even the most battle-hardened, long-term, index fund investors can be tempted to sell their investments when they see or expect their investments to drop 10, 15, 30% or even more.

Unfortunately, dumping stocks due to emotions or other people’s advice or paranoia (especially the media’s) is a bad idea.

Research has shown no one can successfully and consistently time the market. Some individuals will inevitably pull out at just the right moment, but their luck will likely end there. The odds of jumping back in at the bottom are astronomically small.

If you are tempted to jump out of stocks, you probably misjudged your tolerance for risk. Take a step back, re-assess your risk tolerance, and develop a reasonable asset allocation that allows you to own everything. Your portfolio will fluctuate less while still benefitting from any stock market gains.