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INSIDE MONEY: FAMILY FINANCESFINANCIAL CALCULATORSSALARY SURVEYLEGAL ADVICE

Mind Over Money: Your Path To Wealth and Happiness

By Eric Tyson

If you steer clear of the mistakes of those who have come before you, you will be well on your way to achieving practically any endeavor at hand. This definitely holds true when it comes to managing your money. If you commit to avoiding these common errors, you can sidestep a lot of misery and lost money:

  • Failing to plan. Some people continually put off thinking about and planning for their financial futures. These procrastinators often fail to take advantage of retirement plans offered by their employers, including plans that offer free matching money. Think about some of the recent vacations you have taken. You likely weighed your options in selecting your vacation dates and did some research to choose a destination, mode of transportation, accommodations, etc. That vacation wouldn't have happened-and certainly wouldn't have been a success-without proper planning. You should think the same way about your future financial goals.

  • Using consumer credit. Buying consumer goods (e.g. furniture, vacations, cars, restaurant dinners) with credit cards and auto loans will cost you far more than you may imagine in the long run. Besides getting you into the habit of spending money that you don't really have, consumer credit usually comes with relatively high interest rates. On the other hand, if you use credit cards for only transactions you can afford and then pay your full bill by the due date, you won't have any problems.

  • Leasing cars. Many people regret leasing autos without understanding lease contracts, costs and related issues. Extracting yourself from a lease takes enormous persistence and resolve, so it's better to avoid these costly long-term car rentals in the first place.

  • Underestimating remodeling costs. You've likely heard that any type of construction inevitably takes much longer to complete and costs more than you initially expected. If your financial situation doesn't allow for much wiggle room or margin for error, sloppy planning can lead to unfinished projects and even personal bankruptcy.

  • Getting behind on taxes. Although this error is more common among self-employed people, plenty of other folks fail to file their tax returns and pay the taxes they owe. In some cases, this situation results from someone's genuine misunderstanding of the tax system; in others, it's due to procrastination, denial or lack of money.

  • Selling a home soon after purchasing it. Buying and then selling property entails relatively large transaction costs. Impatient and time-pressed buyers often make poor purchase decisions only to later find that they have to sell the house due to financial problems or want to sell it based on other factors that could've been more thoroughly researched in the first place. Be sure to completely analyze your financial situation and thoroughly research the house you are interested in before purchasing a home.

  • Purchasing broker sold products. One of the biggest complaints I have heard from people over the years concerns investments they brought from brokers. Their dissatisfaction often stemmed from the fact that they bought these products without understanding the high fees and commissions associated with the broker-sold vehicles. Other common broker-related regrets are buying through friends and selling otherwise good investments solely on a broker's advice. In retrospect, most of these people realize that they should've stayed far away from broker investments.

  • Selling an investment just because it's down. It's a natural human tendency to want to bail when the going gets tough. However, even the best investments have down periods, and your short-term pessimism could cause you to sell right before prices surge. In general, investors who dumped stocks after the 1987 crash and the early 2000s bear market missed out on enormous future gains.

  • Putting off investment decisions. I'm an advocate of taking your time to choose wisely when you plan to invest significant sums of money. However, a fair number of folks who require decent returns to accomplish their goals sit on cash for years due to their fear of losing money, lack of education and not researching good investments. For example, one successful executive confided to me that he kept all of his spare funds in low-interest bank accounts because his father had lost everything during the great stock market crash of 1929. If he would've gotten over his fears, done his research and moved that money into more lucrative investments, he could have made huge returns.

  • Purchasing or selling investments impulsively. Hoping to cross off the next item on their to-do lists, some type-A personalities too quickly toss their money into inappropriate or poorly researched investments. This often happens when people pick individual stocks, roll over retirement money or choose a new investment to replace maturing CDs.

  • Taking investment advice from poor sources. Friends top the suppliers-of-bad-investing-ideas list, followed closely by the media and editorial columnists. Insecure people too often act on others' picks because they believe these advice givers are in the know. Make sure that you do your research before impulsively acting on nothing more than a bit of advice.

  • Investing in real estate without understanding cash flow considerations. The wealth-building potential of rental-property ownership seems to be on just about everyone's mind these days. Novice real estate investors often make the mistake of not thoroughly researching the income and expense realities of properties before they buy them. Inexperienced landlords also make missteps when trying to rent their properties, and they often end up with more vacancies and headaches than they expected. The early years of rental property ownership can be filled with unexpected losses, which in the worst cases have bankrupted owners who were already stretched too thin because of the initial purchase price.

  • Failing to buy needed insurance. Everyday, people lacking health insurance go to the hospital, people without disability insurance end up with long-term disabilities, and people lacking life insurance pass away and leave their loved ones financially strapped. In addition to the dangers of exposing yourself and dependents to catastrophic losses, if you do not own insurance and then develop a medical problem (known by insurers as a pre-existing condition), you will be unable to purchase any kind of future coverage.

  • Getting duped into buying the wrong kind of life insurance. Over the years, I've heard many people complain about misleading sales pitches and projections from life insurance brokers. In the worst cases, people funnel money into costly and low return cash value plans that offer no up-front tax breaks instead of taking advantage of excellent retirement savings options through work. Ask about your company's life insurance offerings before you pour money down the drain on any other plan.

    Eric Tyson is the author of five personal finance bestsellers, including Personal Finance for Dummies. Eric's work has been featured in The Wall St. Journal, Parenting, on the Today Show and many others. He earned his bachelor's degree in economics at Yale and an MBA at the Stanford Graduate School of Business.



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