Dear Readers: The money decisions you make today can lead to either a secure or a scary financial future. Don't be tricked into being complacent. Think ahead, and plan ahead — and avoid these 13 money mistakes, which could haunt you for years to come.
1) Breaking your budget. Treating yourself is fine as long as you're not living beyond your means. To create — and stick to — a realistic budget, make two lists: your necessary monthly expenses and your nice-to-haves. Can you cover both with your income? If not, get out the red pen and start crossing off those you can live without. Make those extras a goal, and start saving for them. This way, you won't be haunted by bills you can't pay.
2) Losing time on retirement savings. Outliving your money is a scary thought. So retirement savings should come first — even before saving for a house or a child's education. At least contribute enough to your company retirement plan to capture the maximum match. Then contribute more to either your 401(k) or an individual retirement account, putting contributions on automatic. And remember that the earlier you start the smaller the percentage of your salary you need to sock away.
3) Being unprepared for the unexpected. Unexpected expenses can jump out at you at any time. To protect yourself, set aside enough money to cover three to six months' worth of essential expenses in an easily accessible savings or money market account or a short-term certificate of deposit. Retirees should try to increase this amount to cover a year.
4) Getting carried away by credit. Credit card bills don't have to be a nightmare — as long as you only charge as much as you can pay off each month. Otherwise, you stand to lose upward of 14 percent to interest. To tackle current balances, start by paying as much as you can on the highest-interest debt while always making at least on-time minimum payments on the others. Work your way down until you're free of credit card debt — and stay that way.
5) Putting your head in the sand. You can't plan ahead unless you know where you are. It's easy to set up a personal net worth statement to get a big-picture view of your finances. List both your assets (what you own) and your liabilities (what you owe). Then subtract liabilities from assets to find out whether you're in the plus or the minus. This will give you not only a big-picture view of your finances but also a benchmark against which to measure your progress.
6) Betting on the market. When the market goes up, it's hard not to get caught up in the rush. But the reality is that it's almost impossible to time the market's ups and downs. Your best move is to stay with a diversified mix of investments for the long term. (Note: Diversification cannot ensure a profit or eliminate the risk of investment losses.)
7) Betting on a single stock. Today's hot stock can be tomorrow's horror story. If one stock represents more than 20 percent of your portfolio, you're over-concentrated — and you run the risk of big losses. Again, a diversified portfolio is your best move.
8) Losing track of student loans. You can't hide from student loans. If you don't stay on top of payments, they just get more onerous as interest and fees mount up. At least pay the minimum — and never miss a payment!
9) Not hanging on to health insurance. A 2013 study by the International Federation of Health Plans states that the average per-day hospital cost in the United States is $4,293. Talk about coming back to haunt you! A single illness or accident could wipe out your entire savings if you're uninsured. The Affordable Care Act requires that you have health insurance — and so does smart financial planning.
10) Putting off estate planning. To me, there's nothing more frightening than not having a will naming a guardian for your minor children. Beyond that, the complexity of your estate plan will depend on your financial situation. But if you don't put at least the basics in place — including an advance health care directive — you may be leaving your heirs with a web of difficulties.
11) Tapping Uncle Sam too early. Would you be willing to lose 6 to 8 percent of your income each month? Well, that's what can happen to your Social Security benefits if you take them too early. Every year you delay collecting between age 62 (the earliest you're eligible) and age 70, your monthly benefit goes up.
12) Not asking for help. You may be bravely following your own financial path, but when it comes to planning — especially retirement planning — it's good to have a guide now and then. Talking to a financial adviser, at least occasionally, can give you a more realistic picture of where you are and where you want to go.
13) Keeping your family in the dark. Things are always scariest in the dark, so don't be afraid to shed some light on your finances. Talk to your spouse openly about expenses, credit and debt, savings goals, and retirement. And when it comes to estate planning, make sure your adult children know what to expect.
By avoiding these 13 ghastly money mistakes, you'll help ensure that the ghost of past decisions doesn't spoil your financial future. Happy Halloween!
Carrie Schwab-Pomerantz, Certified Financial Planner, is president of the Charles Schwab Foundation and author of "The Charles Schwab Guide to Finances After Fifty," available in bookstores nationwide. Read more at http://schwab.com/book. You can email Carrie at [email protected] This column is no substitute for individualized tax, legal or investment advice. Where specific advice is necessary or appropriate, consult with a qualified tax adviser, CPA, financial planner or investment manager. To find out more about Carrie Schwab-Pomerantz and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.