Dear Readers: It's the rare person who doesn't occasionally fall into some poor financial habits that can lead to potentially scary results. This fall, make sure you're not tricking yourself into a financial bind. Rather, treat yourself to greater security by reviewing these 10 personal finance "gotchas" and making any necessary changes. The results can be better than chocolate!
1) Trick: Assuming your money is going where you want it to go
You're making ends meets, so you're on top of your money, right? Maybe not. Money has a sneaky way of slipping away if you're not careful.
Treat: Instead of making assumptions, make a budget. Start with 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 some of the extras. You don't have to give them up completely, just save in advance. Then when you want to treat yourself, you'll enjoy it even more knowing you've got it covered.
2) Trick: Thinking a financial emergency won't happen to you
Unexpected expenses can creep up on you even if you're young and healthy. A job loss? An accident? It may not happen, but it could, and it could cost you big time if you're not prepared.
Treat: Build an emergency fund. Aim to cover three to six months of essential living expenses by setting aside cash in an easily accessible savings or money market account. You don't have to do it all at once. Just make your emergency fund a line item on your budget and save what you can each month until you reach your goal.
3) Trick: Confusing good and bad debt
Debt like a mortgage or a student loan that's low-interest, possibly tax-deductible and is used for a potentially appreciating asset can actually work in your favor. That's the good kind. Credit cards and other high-interest, nondeductible consumer debt? Even though it's convenient, that definitely falls into the "bad" category.
Treat: Don't charge more on your credit cards than you can pay off each month. Create a plan to tackle any balances. Start by paying as much as you can on the highest-interest debt while always making at least minimum payments on the others. Work your way down until your credit card balances are paid off — and stay that way.
4) Trick: Not checking your credit score
A low credit score can have serious repercussions, from higher interest rates and points on a loan to impacting your ability to rent an apartment — or even get a job.
Treat: Go to the Annual Credit Report website once a year to get a free credit report from each of the three major credit bureaus (Equifax, Experian and Transunion). If you're in the low zone, there are positive steps you can take: pay your bills on time, keep your credit card balances low, establish a long credit history, minimize new credit requests, use different types of credit.
5) Trick: Losing track of bank fees
ATM fees, account fees, foreign transaction fees — they can definitely catch you unawares. And they can add up quickly.
Treat: Review your statements so you know exactly what you're being charged. If you're unpleasantly surprised by the fees you're paying, talk to your bank. Still unhappy? Change banks. There are many no-fee options out there.
6) Trick: Being complacent about retirement savings
Don't assume you're OK just because you're putting some money aside. With more people living into their 90s, there's a real risk of outliving your money if you're not prepared.
Treat: Crunch the numbers so you're sure you'll have the nest egg you want. If you're contributing to a 401(k), great, but it may not be enough. Use an online retirement calculator to help you figure out timing and how much to save each month. Get started early. And give yourself an extra edge by putting all your contributions on automatic. Need more help with number crunching? Consider working with a professional adviser to develop a personalized plan.
7) Trick: Under- or over-insuring
Saving on premiums may seem smart now, but what's the ultimate cost if you don't have enough insurance when you need it? On the other hand, if you're paying for insurance you don't need, you're also losing out.
Treat: Check to make sure your coverage and plans for medical, auto, homeowners/rental or disability insurance are still right for you. Be sure to take full advantage of all your employee benefits. And don't be lured into buying unnecessary insurance for risks that you can handle more cost-effectively on your own (for example, pet insurance with lots of exclusions and high deductibles).
8) Trick: Confusing saving and investing
Just because you have money in a 401(k) doesn't mean it's invested. You have to take action to make your money grow.
Treat: Long-term investing in the stock market is one of the best ways to grow your savings. The key is to invest in a diversified mix of stocks, bonds and cash that are appropriate for your time frame and feelings about risk — and never try to time the market or bet on a single stock. A 401(k) that offers target date retirement funds is one easy way to get started.
9) Trick: Taking Social Security too early
You can file for Social Security as early as age 62, but that doesn't mean it's the best choice for you. In fact, it could mean you'll collect considerably less over time.
Treat: Don't jump to collect Social Security benefits earlier than you have to. If you file before what the SSA considers your full retirement age, your benefits will be permanently reduced. And for every year you wait past your FRA until age 70, you'll get an 8% increase. That can make a huge difference, especially if you enjoy a long life.
10) Trick: Ignoring your estate plan
You may have an estate plan in place, but when was the last time you looked at it? And if you don't have one already, the trick could be not only on you but also on your heirs.
Treat: Set up at least a basic estate plan, including naming a guardian for any minor children and an advance health care directive. Once you have a plan in place, be sure to review and update it periodically to reflect any significant life changes such as marriage, divorce or additions to the family.
Unlike Halloween candy, these financial treats aren't just a one-time indulgence. They can set you up with a sweet financial situation to savor for years to come!
Carrie Schwab-Pomerantz, Certified Financial Planner, is president of the Charles Schwab Foundation and author of "The Charles Schwab Guide to Finances After Fifty." Read more at http://schwab.com/book. You can email Carrie at [email protected] The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. 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.