13 Big Money Mistakes People Make—and How to Avoid Them

Laura Shin
Posted

Money Mistake # 8: Not understanding the terms of a co-signed loan

Another big thing that can affect your credit is co-signing a loan with someone who doesn’t hold up their end of the bargain, dragging down your credit score. It can take years to recover from this kind of event. Take it from this woman–who saw her stellar credit plunge 200 points.

Money Mistake #9: Not realizing that a car payment can affect other goals

A lot of people take on car payments that they can’t afford, accepting a $400 or $500 payment plan without realizing that they’ll have fewer choices when it comes to other financial goals and wants. On top of that, they forget to factor in the cost of gas and insurance, and their car is suddenly guzzling down more than a quarter of their budget.

If you’re reading this, thinking, “Uh-oh … ,” don’t worry. You can trade your car in for a less expensive model—i.e. swap a $20,000 vehicle for one that’s $10,000, and voilà!, your payments have been halved. Or get a more fuel-efficient car that doesn’t need special gas. If you lease, check out SwapaLease.com or LeaseTrader.com.

Money Mistake #10: Not having a will if you have minor children

Your will allows you to name a guardian for your children in the event of your death. Simple question: If you die, do you really want the state to decide what to do with your kids?

RELATED: Wills & Trusts 101

Money Mistake #11: Not having life insurance if you have minor children

Again, this is a simple question: In the event of your unexpected death, how would your family cover immediate expenses, such as funeral costs, as well as long-term ones, like mortgage payments? Buying an adequate life insurance policy can help ensure that your family is well protected.

Find out how life insurance helped this family in the wake of a disaster. Then read our Life Insurance 101, and follow our step-by-step checklist, to determine the kind of policy that you need.

Money Mistake #12: Not having long-term disability insurance

While an emergency fund is a crucial part of any personal finance plan, you should also have disability insurance. It will help if you endure any long-term illnesses, bringing in, say, 60% of your normal salary—an amount that could allow you to stay in your current home.

Before buying an individual policy, look into whether your company offers long-term disability insurance as part of your benefits package. If so, you’ll likely have to pay extra for this coverage, but it’s much less expensive to be part of a group policy than to buy one on your own. If not, shop around for a policy that covers you for at least two years in your “own occupation.”

Money Mistake #13: Not having a plan for your finances

If you don’t have a plan in place for your finances for paying down debt, building savings or setting aside enough for retirement, you’re not getting ahead. This also means that you’re not going to be able to move ahead as effectively on major life goals.

So figure out where you want to be in life a year from now–and then see how your money can help you get there.

  • Ana

    In tip #6, “Accumulate six months’ worth of income in your emergency savings.” I’ve always heard “living expenses” not income. If you save a lot of your income off the top, it doesn’t make sense (to me) to factor that into your emergency fund, cause you could do without that money without it impacting your living expenses. 

    • AldenWicker

      Hi Ana, 

      We generally recommend six months of net income or take-home pay–that’s the amount that hits your checking account each month. However this number can vary based on a lot of things: How much you save, if you’re part of a one-income or two-income household, if you have a mortgage, if you are self employed, etc. That’s why a personalized financial plan is so important. This a general guideline, but you can work closely with a planner to find the amount that’s right for you based on your situation. 

      Hope that helps!
      Alden

  • Sondra

    The link to “Wills and Trusts 101″ is broken.

    • laurashin

      Hi Sondra,

      It should work now. Enjoy! 
      Laura

      • higarner

        I want to meet with a financial planner that helps me determine the cost of a mortgage I can realistically take on and ideas for how I can best budget. I do not want anyone who has a vested interest in selling me anything. How can I find an impartial , knowledgeable financial planner?

  • http://cagirlindc.blogspot.com/ CutMyTeethOnKleypas

    “After all, if you’re making $100,000 a year” – BAHAHAHAHAHAHA, Oh LearnVest, you kill me. :)

  • Debhayward

    would be great to have check marks next to these numbers for solutions to add to our goals list.

  • www.yoursmartmoneymoves.com

    Not understanding the real power of tax deferral.  Many young Gen X/Y clients simply do not understand this even when college educated.

  • Teddy

    I’d also like to add getting a high-maintenance pet, like a dog, when you can’t afford one.  I’ve seen people nearly ruined financially because of this.

  • Dkayrobinson

    Tip #12 LTD Insurance – you will be required to tap any state provided disability programs first which is fair. However, they will put you through the ringer to actually collect under your LTD contract. After 1 1/2 battle with cancer, where I could not work in any occupation as I was going through stem cell transplant, chemo etc. UNOM wanted me to work as a door to door salesman in order to collect under a plan I had paid $1000′s into over an eight year period. These policies aren’t worth the paper they are printed on. They will harass you and not pay. A little online research shows this is rampant across multiple carriers not just UNOM.