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Written By Colin Graves

Hey everyone!  In today’s post I explore  five potentially dangerous financial commitments many of us are confronted with at some point during our lives.  While I’ve summarized them below, I will take a closer look at each one in the coming weeks. Enjoy!  

I made a relatively small, (yet somewhat difficult for me) financial commitment this month.  A no-spend January!  The experience has inspired a lot of thought about the bigger commitments we make in life.  Things like work, marriage, kids, faith, and you guessed it, finances!

When it comes to the places where you commit your hard earned dollars, there are the no-brainers.  Savings plans, insurance, education, debt repayment or charitable giving, it’s hard to go wrong with this stuff, although there are more or less effective ways to do so.

On the flip side however, there are the not-so-easy financial decisions.  These are the ones that can jump out and bite us if we’re not careful.  Have you ever been told, “Be careful what what you commit to”?  That advice couldn’t be more true when it comes to your money.

As such, I think it’s important to shine a spotlight on a few of life’s potentially dangerous financial commitments. Before we get to the list, here’s something to consider:

Choose wisely!

If anyone tells you they’ve never made mistakes with money, they’re out to lunch!  Every one of us have, I know I certainly have.  After all, managing money is tough!  There are always unknowns, and our emotions can get in the way.  Not to mention, we don’t always have hindsight to guide us.

So proceed with caution, especially with the big decisions; major purchases and long term commitments.  While I’m a firm believer that most financial mistakes can be corrected, certain ones are more difficult to reverse, taking more time and causing more collateral damage.  It’s always a good idea to seek the counsel of someone you trust.  If you notice that your emotions are clouding your decision making ability, a third party can help guide you to a more rational decision.

Without further ado, here is my list of five potentially dangerous financial commitments:

1. Taking out a MONSTER mortgage. 

monster houseA house is the biggest purchase most people will ever make, and a huge financial commitment.  This is especially true if you’ve stretched your borrowing capacity to the limit by taking out a MONSTER mortgage, and purchased more house than you can afford.

One problem is that too many people don’t think long term when they buy a house.

A lot can change in your life in 5, or even 10 years.  There’s a reason a house is considered a fixed asset.  It’s not easily liquidated if you experience a sudden change to your financial situation, or your plans.

Things like rising interest rates, or declining housing markets can compound the risks of taking out a large mortgage.

But the bank says I can afford it! 

Just because your bank will qualify you for a mortgage payment of up to 32-35% of your pre-tax income, does not mean you should even approach that figure.

One problem is that the calculation is too simple.

Did you know that your bank uses the EXACT SAME measuring stick of affordability for an individual that they use to qualify a family of two parents with three or four kids?  The living expenses incurred by different borrowers can vary greatly!

Furthermore, banks rarely take into account the various lifestyle expectations and savings commitments of their customers when qualifying them for a mortgage, or any credit for that matter.

No wonder so many people have trouble finding the money to save at the end of the month.

2. Financing a new car.  

pickup Let me make this clear, buying a new car is NEVER a great investment.  This is coming from someone who bought a new car, and then, 14 years later,  wrote a post titled “The Greatest Car I’ve Ever Owned”! Makes me sound like a hypocrite, right?  If you ask me, that article should have come with a disclaimer, stating “results are not typical”, like some gimmicky weight loss infomercial.  For a new car purchase not to be a poor financial decision, there are simply too many factors that have to go right.

You need to own it for well over 10 years, drive it a gazillion miles, while it returns rock-solid reliability to you during the life of the relationship.  How often do all of those things really happen?  Most people don’t hang on to their cars that long, getting rid of them shortly after they’ve endured their vehicle’s sharpest period of depreciation.

The other problem is that for every $16,000 Toyota Corolla or Honda Fit, people are buying $50,000 Ford F-150’s.  This is where buying a new car goes from a questionable decision to a complete disaster.

3.  Retail store financing programs.

While the dollar amounts involved don’t compare to buying a new car or an expensive home, taking advantage of seemingly attractive financing offers from retail stores is rife with potential hazards.

I’m referring to the “Don’t pay a dime until 2029”, or “No interest or payments until 2018” offers, when you buy household items with a retail store credit card.  They make it so easy to get that new living room set, or the stainless steel kitchen appliances.   The truth is, it’s so easy to for things to go awry, leaving you with a huge credit card bill and sky high interest rates when the grace period expires.

When it does, are you 100% sure that you’ll have the funds available to pay the amount in full?  Many of these programs will charge interest at the full rate, retroactive to the date of purchase, if you miss the payout deadline by even one day!

My advice for the vast majority of people?   Don’t touch retail store credit cards.  Think of it as the financial equivalent of handling a ten foot long venomous snake, or allowing a black widow spider to crawl across your forehead. : )

4. Co-signing a loan for a friend/family member.

co-signorHere’s one you don’t read about a whole lot in the personal finance community, which surprises me.  Anytime you decide to co-sign for someone else’s credit, you are making a huge financial commitment, with numerous potential pitfalls.

This is an area where emotions and money can collide, with disastrous results!  If things go wrong, much more than your credit rating can be affected.  Close friend or family relationships can be damaged.

It doesn’t matter that you’re in a great financial position, that you’ve been blessed with a stable job, or that you’ve got net worth to burn.

By becoming a co-signor, you are now financially “joined-at-the-hip” to someone who may not be as wise or as committed as you are, about money.  The fact that they need you to come along and add strength to their credit application means that while they may have noble intentions, their bank has reservations about their ability to repay the loan.

Here’s a rule to follow:  If you wouldn’t be willing to give this person the loan amount in the form of a gift right out of your pocket, you probably shouldn’t take on the responsibility.

One other thing, you may be told that cosigning is just a temporary arrangement.  “We’ll get you off this thing in 6 months or a year!”.  Yeah right.  Remember this: Banks are usually VERY reluctant to remove co-signors from a loan prior to full repayment.  After all, what’s their motivation to do so?  Their priority is managing risk, not doing favors.

I have one more point to add, and it’s an important one.  When you are applying for your own credit, the monthly payment on any loans you’ve cosigned for must be included when the bank is determining your own affordability.  No consideration is given to the fact that someone else makes the payment each month.

5.  Starting a Small Business.   

Woah, hold on!  As a personal finance blogger, I should be supportive of things like having an entrepreneurial mindset, taking control of your finances, of side hustles and breaking from the 9-5!

Unfortunately, an entrepreneurial mindset alone won’t do it for you. In fact, on it’s own it could be very dangerous.  In my experience, one of the strengths of a born entrepreneur is the willingness to take risks.  However, if you don’t possess the other qualities necessary to be successful in business such as talent in your field, collaborative ability, unmatched determination and really thick skin, you’re in big trouble.

I’m not saying don’t start a business.  In fact, I’ve begun the journey of converting my side hustles into a regular income stream myself.

But be wary.  Understand the risks.  Do your research, and draw on the advice of people that have the knowledge and experience to help guide you!

There you have it!  Five of the most dangerous financial commitments you can make.


This is far from an exhaustive list.  What others can you think of?

Feel free to send me an email or share in the comments below!


  1. Great advice! I just spoke with my millennial niece (26 years old) who is working diligently to dig out of 30k in student loan debt and an ill-advised 3 year car lease on a $39k gross income. One of her friends suggested that she buy a house as soon as possible because “renting is throwing money away”.

    I asked her if her friend was rolling in extra money because of the house she bought and, of course the answer was, “no, she’s stressed out and can’t afford the repairs and barely makes the payments”. So she answered her own question. Getting a mortgage under any circumstance has been touted as the American Dream for so long everyone believes it without doing the math for themselves.

  2. Good advice here! I’ve been down the new car road not one., but three times. It’s so tempting and so easy to justify.

    I don’t think it’s financially prudent for anybody to buy a new car. Even if you have the cash on hand, why would you not pocket 10k and get a good 3 year old model?

    • Thanks for sharing, Michael. If there’s one consumer product that I’m tempted by, it’s new cars, so I know where you’re coming from. I too have fallen into the new car trap more than once. Thankfully I’ve learned my lesson, although it took a while. : )

  3. #5 was a big one for me in my early 20s. I lost a ton of money not managing a startup properly. Thankfully lessons were learned and the current venture is much more successful. Still though, the sting is still there!

    Great stuff, thanks for the post!

    • Hi Wes! I’m so impressed by people who start small businesses, but I’m just not sure that everyone goes into it with their eyes wide open. Love how you didn’t give up and learned from your experiences!

  4. All red flags and excellent advice. I wish I could own my own home, but I have done the math. Even if I wanted to leave the city and buy a house someplace a little cheaper, I am still paying nearly what I pay in rent now on the extras – insurance, taxes, maintenance. Plus a mortgage. And I know I could not afford that. I would rather rent than break my back. And as much as I would love not to have a boss, I know that I am not an entrepreneurial soul – not every one is. I don’t want to read emails on the weekend or talk to clients while I am on vacation. Self-employment is a wonderful thing, but only if you have the right kind of personality. There is a great responsibility that comes with employing other people that is just not for everyone. Now if freelancing paid the bills on the other hand…

    • In past years, we talked about moving to another community in order to afford more house for our money. Thankfully we came to our senses. Now I think, why would we ever do such a thing? I’ve always told myself I was the 9-5 type as well, but I think much of that was rooted in fear. Definitely not about to jump ship, but my perspective has certainly shifted. 🙂

  5. All great points. I wish more people would think twice before buying a new car. In my opinion, you can throw so much money away on something that just needs to get you from point A to B on a reliable basis. However, I am also a hypocrite. I bought my first new car in 2000 and drive it for 13 years. I then proceeded to buy another new car 4 years ago, but am still driving it today (and it has been paid off for quite some time). Both cars were Honda Civics <$20. I think buying a new car is not a bad decision, as long as you plan on keeping it for the long haul. And most people don't.

    As for a house, I unfortunately live in a high cost area, and have a larger mortgage than I would like, but it is still only 25% of my pre-tax income. And in a great location perfect for renting it out in a few years when I move on to my next expensive mortgage 🙂

    • You make some great points Danielle. I was going to mention in my post that a 25% debt servicing ratio for a mortgage is much more reasonable, but didn’t want to go down a rabbit trail. I’ll dig into the numbers more in a later post. It’s always more challenging to find affordable housing in a high cost area as well, you often have to get pretty creative.

  6. Let us know how the no spend month shapes up! So much yesssss to these. I hate when I hear of people loaning money to family and they get screwed over; it’s heartbreaking.

    Overall I think people tend to take on too many huge loans–student loans, car loans, mortgage. It adds up quickly, and we usually don’t consider repayment and earning power as a basis for choosing loans.

  7. Co-signing is a ticking time bomb. Thankfully nobody has ever asked me to co-sign for them. And maxing out a mortgage because the bank said you could afford it is like playing Russian Roulette.

    By the way, that snake is giving me the heebie jeebies!

  8. Great advice on all points, MMM! #1 is a killer, but it’s one I see the most. I was curious, so I just went out and did an online calculator to see “how much house” I can afford. Turns out, they think I can afford twice what I paid for my house!!!??? No, really, I can’t afford that. You’re right, they only look at certain numbers, with no consideration for expenses – and leave no room for saving at all.

    Awesome post!

  9. Great points! Especially the monster mortgage! We are currently looking for a house and the bank approved us for this crazy amount. Unfortunately, that crazy amount does not work for our budget. Hahaha.

  10. This is a great list. If I were to add a sixth dangerous commitment it would be go to an affordable school if you must take out student loans. I feel like we hear in the news all the time about six figure student loans and how they will be swimming in debt for the 30 years. I have a friend that decided to go to an out of state school just to be different. He has said if he knew what he knows now that he would have gone in state and forgone the student loans he had to take on.

  11. This is a great list and I think one of the most dangerous mistakes someone can make is when they don’t take the time to learn about how to manage their personal finances.

    If you wait till you make a mistake and take out a huge mortgage or buying a brand new car, it’s going to be very difficult to solve them.


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