5 Decisions Sure to Sink Your Finances

Want to keep your finances in good shape? Don't do this.

It doesn't matter if you've just finished high school or hold a PhD in economics -- everyone makes financial mistakes. If you're lucky, the mistakes are small enough that you can learn from them and move on. If not, you can spend years trying to dig your way out of a financial hole.

In the hope that we might save you from some of your own financial mistakes, we offer this list of some of the biggest. These five things can easily sink your financial ship, if you let them.

1. Cosign a loan

You love your family and friends -- we get that. However, there are only two reasons someone asks you to cosign a loan. Either they can't qualify on their own, or their credit score is poor.  

Here's the thing about cosigning on a loan: You're not just saying, "Yes, I know this person is really great." You're saying, "I agree to make payments if this person stops making them. I agree to allow my credit to be ruined if I don't make this person's payments."

In short, cosigning is serious business. If the person asking you to cosign has a thin or non-existent credit record, make sure you know them well -- will this person really make every payment on time? If the person has poor credit, that means past creditors have gone begging. Ask yourself if you can expect something different. If someone wouldn't pay back past creditors, are they likely to be concerned about your credit score?

2. Break the law

It's tough to outrun a criminal record. Not only can it disqualify you from employment and security clearances, it can prevent you from being accepted to some colleges and from receiving financial aid.

A criminal record doesn't have to ruin your life, particularly if you're trying to turn things around. But it can make it that much harder to get on your feet. It may not feel fair, but it's reality.

3. Wear rose-colored glasses

Ask anyone who became an adult in the "greed is good" '80s -- a lot of people back then took on more debt than was wise. It was an era driven by a belief that American jobs would always be plentiful, pay would always increase, and the ladder to success would remain sturdy.

If there's any one thing that can save you from financial devastation, it's this: Accept that bad things are going to happen and prepare for them. 

That doesn't mean you should live in dread of a recession, but as you enjoy times of plenty, regularly put aside money to float you when times are lean.

4. Merge your money without marrying

So you love your partner. You want to live together and merge your lives. Know this, though: If you break up, no judge is willing to figure out who bought the sofa, paid veterinary bills, or covered most of your last vacation. There is no court in place to deal with couples who commingle their finances but aren't married. If, during the honeymoon period of your relationship, you decide to purchase a home or take out a personal loan together, do so knowing that non-marital breakups can be particularly messy. Don't put yourself in debt when you may end up with nothing to show for it. 

You can live together without sacrificing your finances. It may not be romantic, but you owe it to yourself to have a written cohabitation agreement before moving in with someone. You can buy a cohabitation agreement online and have it notarized once it's been signed, but your best bet may be to work with separate attorneys to protect any assets you bring into the relationship.This kind of agreement lists individual assets, and lays out what you'll do with anything you purchase as a couple. 

5. Pay a success tax

In the black community, there is a term for feeling as though you owe it to the people in your life to take care of them financially once you've "made it." It's called the "black tax." A similar tax falls on many successful people, regardless of ethnicity. 

Unless you have an emergency fund with enough to cover six months' worth of expenses and your retirement is on track to be fully funded, you can sink yourself by giving money away, even if it helps you avoid guilt. That's not to say you should never help a parent or sibling, but if someone keeps coming back to the well, it's important to learn to say no. 

Of course, there are other ways to sabotage your finances. But there are ways to protect yourself, too. You can head off money problems by taking advantage of employee-sponsored retirement plans, creating a budget that you can stick with, living below your means, and recognizing that high-interest debt is never a good idea. 

We're all destined to make financial mistakes. The trick? Avoid as many as possible, and correct mistakes as soon as you can.