How to Avoid Common Money Mistakes

Financial problems, like many medical problems, are best detected early
(clean living doesn’t hurt, either). Here are some common personal financial
problems I’ve seen in my work as a financial counselor:

Not planning: Human beings were born to procrastinate. That’s why we
have deadlines (like April 15) — and deadline extensions (need another
six months to get that tax return done?). Unfortunately, you may have no

explicit deadlines with your overall finances. You can allow your credit
card debt to accumulate, or you can leave your savings sitting in lousy
investments for years. You can pay higher taxes, leave gaps in your
retirement and insurance coverage, and overpay for financial products.
Of course, planning your finances isn’t as much fun as planning a vacation,
but doing the former can help you take more of the latter. 

Overspending: Simple arithmetic helps you determine that savings is the
difference between what you earn and what you spend (assuming that
you’re not spending more than you’re earning!). To increase your savings,
you either have to work more (yuck!), increase your earning power
through education or job advancement, get to know a wealthy family who
wants to leave its fortune to you, or spend less. For most of us, especially
over the short-term, the thrifty approach is the key to building savings
and wealth. 

Buying with consumer credit: Even with the benefit of today’s lower 

interest rates, carrying a balance  month-to-month on your credit card 

or buying a car on credit means that even more of your future earnings 

are going to be earmarked for debt repayment. Buying on credit encourages 

you to spend more than you can really afford. 

Delaying saving for retirement: Most people say that they want to retire

 by their mid-60s or sooner. But in order to accomplish this goal, most 

people need to save a reasonable chunk (around 10 percent) of their incomes 

starting sooner rather than later. The longer you wait to start saving for 

retirement, the harder reaching your goal will be. And
you’ll pay much more in taxes to boot if you don’t take advantage of the
tax benefits of investing through particular retirement accounts. 

Falling prey to financial sales pitches: Great deals that can’t wait for a little

reflection or a second opinion are often disasters waiting to happen. A sucker 

may be born every minute, but a slick salesperson is
pitching something every second! Steer clear of people who pressure
you to make decisions, promise you high investment returns, and lack
the proper training and experience to help you. 

Not doing your homework: To get the best deal, shop around, read reviews, 

and get advice from objective third parties. You also need to
check references and track records so that you don’t hire incompetent,
self-serving, or fraudulent financial advisers. But with all the different 

financial products available, making informed financial decisions has become an
overwhelming task. I do a lot of the homework for you with the recommendations
in this book. I also explain what additional research you
need to do and how to do it.

Making decisions based on emotion: You’re most vulnerable to making
the wrong moves financially after a major life change (a job loss or
divorce, for example) or when you feel pressure. Maybe your investments
plunged in value. Or perhaps a recent divorce has you fearing that
you won’t be able to afford to retire when you planned, so you pour
thousands of dollars into some newfangled financial product. Take your
time and keep your emotions out of the picture. 

Not separating the wheat from the chaff: In any field in which you’re
not an expert, you run the danger of following the advice of someone
who you think is an expert but really isn’t. This book shows you how to
separate the financial fluff from the financial facts.  You are the
person who is best able to manage your personal finances. Educate and
trust yourself!

Exposing yourself to catastrophic risk: You’re vulnerable if you and your
family don’t have insurance to pay for financially devastating losses.
People without a savings reserve and support network can end up homeless.
Many people lack sufficient insurance coverage to replace their
income. Don’t wait for a tragedy to strike to find out whether you have
the right insurance coverage. 

Focusing too much on money: Placing too much emphasis on making
and saving money can warp your perspective on what’s important in life.
Money is not the first or even second priority in happy people’s lives.
Your health, relationships with family and friends, career satisfaction,
and fulfilling interests should be more important.