Money Mistakes - 3 common problem areas, plus expert tips that’ll help you get back on track financially.

by Heidi Pearson | Photographs by John Wagner

Have you ever made an impulse purchase? Bounced a check? Felt that wave of dread when opening a credit card statement? Join the club.

Nobody’s financial practices are perfect. We all have areas where we’re prone to make mistakes—some that may hurt us in the long run.

For example, many people spend money they don’t actually have in the bank—and won’t anytime soon. Others don’t plan ahead beyond, “When I have money, I’ll start to save for retirement.” And some have no safety net. Sound familiar?

If you see yourself making any of these mistakes, don’t worry. You can improve your money situation starting today.

Spending More Than You Have

About 40 percent of credit card holders carry a balance of less than $1,000, but about 15 percent have total card balances in excess of $10,000, according to myFICO.com, a division of Fair Isaac Corp. If you carry less than that, don’t pat yourself on the back—any credit card debt is too much. “We’ve become an instant gratification society,” says Jill Aleshire, director of consumer banking at Thrivent Financial Bank. “It’s the ‘I want what I want, and I want it now’ mentality.” Mix in the tendency to tap home equity impulsively—sometimes to cover credit card debt—plus the desire to keep up with the Joneses, and you have a lot of Americans in serious financial trouble.

If you’re mired in debt, consider cutting up some (or most) of your cards. Paying cash for purchases can sting, but that’s a good thing, since you’ll probably spend less. A study by researchers at MIT’s Sloan School of Management found that people’s willingness to pay increases when they’re told to use a credit card, rather than cash. So, limit yourself to one or two multi-purpose cards that you pay in full each month, and use cash for the majority of your monthly expenses.

Next, establish a budget … today. It is absolutely necessary for financial freedom, and it will take about as much time as watching the nightly news and Leno’s monologue. Aleshire encourages people to use the Home Budget Analysis tool. Gather last month’s bills, receipts and pay stubs, enter the required information and watch while the tool creates your monthly budget. Then, stick to it. Track your spending and adjust your numbers for things like rising food and gas prices.

Failing to Plan Ahead

We all have retirement dreams, whether they involve road trips in a shiny new RV or mission trips to Africa. And by now, most of us know we can’t rely entirely on Social Security to get us there. Instead, it’s squarely up to us—our preparation, discipline and foresight. The same goes for helping to fund a child’s college education or saving for our own long-term care. You know what you want the future to hold, but are you doing all it takes to get there? For many of us, the answer is “no.”  

To get strategic about your financial future, first be specific. “You need to define your goals and keep them top-of-mind,” says Alan O’Donnell, senior advisory process specialist at Thrivent Financial for Lutherans. “If you don’t have a sense of exactly what it is you’re trying to achieve, you can’t measure your progress.”

And be realistic. Many of today’s retirees will live into their 80s and beyond—that’s 20, 30, even 40 years of retirement. How many years will you need to cover? And don’t lowball your projected spending. Hans Van Dyke, a Thrivent Financial representative in Kerrville, Texas, reminds his members that they’ll likely eat out more often when they’re retired, so they need to plan for it. U.S. News & World Report backs him up, reporting that spending on discretionary items and travel goes up in the early years of retirement.

Meet with a financial professional with your goals in mind. He or she will listen to your vision, analyze your current situation and make recommendations based on your age, risk tolerance and other factors. You also can discuss how to take full advantage of employer-sponsored benefits.

Once you have a plan, stay the course. Don’t let market ups and downs make you nervous about your investments. “It’s never wise to try to time the market,” says Adam Klohr, a Thrivent Financial representative in Jacksonville, Florida. Rather, try to focus on the long term and commit to riding out changes.

Working Without a Safety Net

First, a few tough questions: What if your car breaks down tomorrow to the tune of $2,500? What if you get laid off next week with just two months of severance pay? What if you’re killed crossing the street next month? Nobody wants to think about these scenarios, but the potential financial fallout from “the unexpected” is simply too big to ignore. If you’re not planning for it, you’re putting yourself and your family at risk.

To become better prepared, establish an emergency fund. Its existence will help you stay calm in the face of unexpected challenges. “At least three to six months’ living expenses is the general rule,” says O’Donnell. To keep this money safe and accessible, consider a savings or money market account. “Even $50 every month is a great way to begin,” says Van Dyke.

Also build your own benefits package. Klohr has seen too many of his members rely entirely on their employer’s life and disability insurance packages and then wind up with nothing in place when they lose a job or change employers. “Everyone, upon entering the workforce, should purchase disability income insurance,” he says. That way, you’re covered no matter where your career takes you. Also, seriously consider life insurance. Even if you have no one to leave money to, grim as it may sound, someone will have to pay for your funeral and other debts you may have.

Tend to your will and insurance contracts. “Situations change,” says Klohr, and it’s critical to keep these important documents current. Van Dyke recalls members who wanted their son to get their assets when they passed away. But when the wife died, the husband eventually remarried and titled everything in a joint account with his new wife. “When he died, all the assets that he and his previous wife had built up went to his new wife,” Van Dyke recalls. “The son lost out on everything.”

So, here’s the bottom line: Even if you’ve made money mistakes in the past, you can recover. Whether it’s creating a budget, setting realistic goals or building an emergency fund, you’ll be starting down the right path for financial security—and even better, peace of mind.

Heidi Pearson is a Twin Cities writer and a frequent contributor to Thrivent magazine.

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