50 Simple Steps You Can Take to Improve Your Personal Finances : How to Spend Less, Save More, and Make the Most of What You Have

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Ten Personal Finance Mistakes You Can't Afford To Make

When it comes to money, we all make mistakes. And, surely there are more than ten mistakes to be made. But if you're nimble, you'll not only avoid these mistakes, you'll probably avoid others as well.

1. Procrastinating. It's so much easier not to deal with serious issues like death, taxes, and money. Unfortunately, they're a part of life. Make a list of all your money chores and tackle the hardest one first, in the morning, when you're fresh and full of energy. Then move onto the easier tasks. You'll find that once you get the ball rolling, you'll have to run to keep up with it.

2. Spending more than you earn. If you want to be wealthy, you have to spend less than you earn. And then you have to invest your earnings wisely. It's that simple. If you live above your means, you'll always be in debt and you'll always be stressed about the fact that you're in debt. Debt weighs heavily, and can bring down the sunniest of souls. Don't let that be you.

3. Not saving enough. Most Americans save less than a half a percent of their annual income. Of those who do put away something, the majority have saved less than $100,000. That isn't going to get you too far, particularly since most of us need anywhere from 80 percent to 120 percent of the annual income we were earning on the last day we worked. To get there, try to save twice what you think you'll need. What's the worst thing that can happen? You'll end up with too much money at a stage in your life when you have the time to enjoy it.

4. Overusing your credit cards. If you can afford to pay off your credit card in full at the end of the month, no matter how much you charge, then feel free to use that card as much as you like. Unfortunately, most of us can't afford to do that. And so, month after month, we continue to pay outrageous sums of interest (anywhere from 16 to 30 percent is common), none of which is deductible. If you're in debt up to your ears (other than mortgage debt), you'll never get ahead financially. So pay off all your non-deductible debt as quickly as possible.

5. Looking for the big kill. Yes, it's possible you will win the next $300-million Powerball lottery and collect more than enough money for several families to live on in style. But I wouldn't count on it. Nor would I count on picking a stock, putting everything I own into it, and counting on it soaring 2,000 percent in six months. If you're always looking for the big kill, you might miss out on some attractive but less aggressive investing opportunities that will, over time, significantly improve your personal finances.

6. Letting your emotions interfere with your investment strategy. Your investments are not your children, your parents, your best friends, or your pets; nor should they be your sole reason for living. But some folks get so caught up in the investment of the moment that they forget to check their emotions at the door. You want to manage your money with a cool head and plenty of research to back up that gut feeling.

7. Trying to time the market. No one can time the market. Even people who think they can time the market, who are paid millions of dollars each year by investment firms on Wall Street to do so, can't. If they can't do it, you can't either. The best way to invest in the stock market is by dollar-cost averaging -- that is, investing the same amount each month, no matter what the market is doing. It's the safest and best way for most people to invest.

8. Failing to diversify your investments. The stock market goes up and the stock market goes down. And when it goes up and down over and over again within a short period, this is called market "volatility." The only way to keep yourself insulated is to invest in a wide range of companies in various market sectors, such as technology, energy, and telecommunications, that you can expect to move somewhat out of step with each other. The best reason to diversify: It'll let you sleep at night.

9. Chasing the investment "flavor of the month" (or week, day, or minute). Don't chase "hot" investments -- or mutual-fund managers, for that matter. What you want to do is find solid companies and invest in them after you've thoroughly done your homework. Choose mutual funds that have good ten-year or fifteen-year track records. If they've performed well in the past, it's more likely they'll do well going forward.

10. Not taking enough risk. If the thought of taking risks keeps you awake at night, you'll need to temper those feelings. When it comes to investing, you'll need to take some risks or you'll never be able to grow your money. At best, you'll be able to keep it in a bank account that's FDIC-insured. Or, perhaps you'll invest in tax-free municipal bonds. But with risk comes reward in the stock market, the kind of gains that will keep you in cups of gourmet coffee throughout your retirement. The best time to take a risk is when you have twenty or thirty years until you retire, and a retirement account you can't touch. Start slowly, investing a little bit here and there until you get used to it, and then hang on for the ride. When it's all over, you'll probably have earned at least the 10-percent average annual return that the market has generated for the past seventy years -- if not more.