Americans’ Biggest Financial Mistakes
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CREDIT: Burning money image via Shutterstock
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Unnecessary missteps with money can keep people from achieving financial security. 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. Here are 10 of the more common money mistakes American's make:
Budgeting
One of the most common financial mistakes is not setting and keeping to a monthly budget, said Kevin Gallegos, vice president of Phoenix operations for Freedom Financial Network.
"Budgeting may not sound exciting, but it is the number one, sure-fire way to stretch a salary and save money," Gallegos told BusinessNewsDaily. "Don’t do it, and you’re like a rudderless ship without a way to get where you want to go."
Creating a budget doesn't have to be a complicated process.
"The key is to set goals," Gallegos said. "Whether your goal is to take a European vacation, save for retirement, or budget time and money to train for a 10K, write down the goals and build your budget with the goals in mind."
Credit cards
Financial attorney Leslie Tayne believes many financial problems can be traced back to the use of high-interest credit cards.
"If you only pay the minimum on your balance, or miss credit card payments, you are perpetuating the debt cycle," Tayne said. "You are likely to continue accruing high interest and/orpenalties on your accounts, exacerbating your debt."
Keeping things to yourself
While talking about money might taboo, Nick Richtsmeier, a regional vice president for Trilogy Financial Services, said the number one mistake he sees is that too many people keep their financial moves a secret.
"If absolutely no one knows what you are doing with your finances then guaranteed you are fooling yourself into thinking you are doing better than you are," Richtsmeier said. "Have at least one person (in addition to your spouse) that can ask you honest questions about how your money decisions match your goals."
That person can be anyone from a reliable friend to a professional financial advisor, he said.
Credit reports
Credit coach Jeanne Kelly said a common misstep is not keeping track of a credit report.
"A big problem is people use credit and do not educate themselves on it," Kelly said. "Your credit report can change with you not even knowing it because you never look at it for accuracy."
Kelly’s first rule of credit is to regularly pull your credit report to ensure you are aware of what is being reported and how that can affect your financial well-being.
Not saving for repairs
Sally Palaian, a licensed psychologist who specializes in treating financial dysfunction, said too often people pretend they don't need to put money aside for maintenance, repairs and replacement of the things they depend on.
"I teach people that everything is going to break: dishwashers, car brakes, furnaces, teeth, computers and phones," Palaian said. "We need savings to handle these very predictable expenses that happen to everyone."
Buying a house
Buying a house that'smore than you can afford is the top mistake that will cripple a long-term financial plan, according to Ted Jenkin, CEO and founder of oXYGen Financial, Inc.
Jenkin advises his clients to only buy homes when the mortgage payments aren't more than between 28 and 34 percent of their total gross monthly income.
"It is impossible to squeeze into a home financially like you would a car or some other one-time purchase," Jenkin said. "Use that statistic in conjunction with putting 20 percent down on your home purchase and you will typically avoid this number one financial disaster."
Lending terms
David Rodriguez, a financial education advocate for Generations Federal Credit Union, says the biggest mistake he sees among his clients is their lack of understanding of lending terms such as APR, balance transfers and hidden fees.
"The most common issue I have come across in teaching my financial education classes is the lack of understanding on how to calculate monthly APR, one of the most critical components of any loan or credit card," Rodriguez said. "Not understanding these key terms can easily land consumers in jam very quickly."
Diversify investments
Thinking its okay to invest all your money in one place is a near-certain way to get into major financial difficulties, financial advisor Darrell Canby said.
"Investing all of your money in a single stock is like going to the track and putting all of your money on a single horse," Canby said. "Both are big gambles."
Prudent investors divide their investments between stocks, bonds and other investments, as well as keep a small amount in cash equivalents such as money market funds, Canby said.
Retirement planning
While the population is beginning to live longer, certified financial planner Damian Rothermel still sees many people planning their retirement based on living only until age 90.
"This is probably too short of a timeframe, as many individuals live longer," Rothermel said. "The concern is the plan put in place may not last as long as the client lives."
Life insurance
While it might not be easy to think about your death, financial advisor and insurance broker Liran Hirschkorn said a big mistake is not thinking about the financial wellbeing of loved ones left behind.
"I constantly hear stories of people who lost the breadwinner and are suddenly put into a very tough financial situation," Hirschkorn. "Protecting yourself with proper disability and life insurance is key."
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