It is not unusual to hear even experienced investors talk about money management mistakes they have made. As the saying goes, “Everyone makes mistakes.” Learning from the mistakes of others is a smart way to improve your own track record. Some common financial mistakes can cost you some serious money and add to your stress levels — but most of these potential missteps are avoidable if you plan ahead. As noted by Chad Brooks on the Business News Daily website in a November 2012 article, “Whether it's over-using credit cards or not properly saving for unexpected expenses, financial experts see many errors that are relatively easy to correct.”
Failure to Review Your Accounts
This might might be the easiest money management mistake of all to avoid. All you have to do is pay more attention to your financial accounts on a regular basis. This involves reviewing statements, talking to financial advisers and then taking appropriate action. However, failure to do this can be costly. As noted in a September 2014 Daily Finance article by John Schmoll, “I have seen investors lose tens of thousands of dollars because they ignored their accounts.”
Lack of Retirement Planning
Retirement planning requires looking several decades ahead on a regular basis. A monthly or yearly savings plan is one way to accomplish this. Financial planners usually recommend setting aside at least 10 percent of your income for retirement — however, the U.S. savings rate is only 4 percent. Many individuals do not have any retirement accounts, and less than 20 percent of investors think that their money management activities will produce adequate income during retirement. One practical option to improve in this area is saving automatically at the beginning of the month through a withdrawal program rather than saving whatever is left over at the end of the month. Some common wisdom might say it best — “Pay yourself first.”
Misunderstanding Installment Debt
Credit cards make your life simpler by allowing convenient purchases -- but the potential costs and complications are often overlooked until it is too late. While financial institutions make it easy for you get to cash advances and make a small minimum monthly payment, the unpaid balance is subject to fees and interest that can exceed 20 percent. With credit card payments and other installment debt, paying off balances can take years. These financial obligations can make it more difficult to set aside money for retirement and other long-term financial needs. One solution for avoiding this money management mistake is to use debit cards that restrict amounts spent to cash in your account rather than a credit line.
Spending Too Much on Housing
How much you decide to spend on housing and other monthly expenses can have a long-term impact on your money management success. A mortgage typically involves a financial commitment that can last 25 years or more. If your mortgage payment takes up too much of your paycheck, you might end up using your credit cards to meet emergency needs and cover other living expenses. Even though renting avoids the long-term commitment of a mortgage, excessive payments for a lease can have a similar negative impact on what you have left for your other financial needs. One solution is to create a realistic budget to define what you are willing to spend for retirement, emergency spending reserve, housing, food, entertainment, education and whatever else has a high priority in your life.
Additional Mistakes and Expert Help
A regular challenge with money management is that there is not just one key mistake to anticipate and avoid. The list is lengthy, because managing your money involves a combination of legal, financial and personal issues. One prudent solution is to obtain some expert help. Some candidates to consider include qualified attorneys, accountants and financial advisers. It is your money — spend and save it wisely.
Stephen Bush is based in Ohio and has been a business finance consultant and writer for more than 30 years. Bush obtained a Master of Business Administration in management and finance at the University of California, Los Angeles.