Top Money Mistakes, Part I

By Nancy Zambell, Contributing Editor

As a young woman, I always said I wouldn't turn into my parents, but back then, I didn't know the transformation was inevitable! 

Whether it's yelling at my nieces and nephew to close the door for the tenth time that day, checking to make sure for the third time that I've turned off the stove before I leave the house, or suddenly forgetting what I walked into a room to get, suffice it to say the conversion is almost complete.  

And while those instances often bring a laugh, there is one area that I don't mind sounding just like my folks, and that's in dispensing financial advice - even when it isn't necessarily desired. 

I know that for the most part, my nieces and nephew ignore my advice. I did the same at their ages. But - especially in light of what I do for a living - I feel it is my mandate to try to prevent them from making the same mistakes that I (and most of the people I know) have made over the years, particularly when it comes to money.  

It isn't that I'm all-knowing, or all-seeing, but after 20+ years in the financial arena, I've found that just a handful of simple premises - if followed fairly consistently - can make the difference between a comfortable living in retirement, and one in which you may need to halve your prescription pills so that you can afford to eat. 

Listen, money management isn't rocket science. The recipe - once practiced for awhile - can be almost effortless: Begin by thinking about your personal financial situation; add awareness of opportunities to earn, invest and save; mix in a little planning and discipline, and you've got a casserole for success. 

It really is easy. However, people make the process much more difficult than it has to be by simply repeating the same mistakes that ultimately sabotage them and their family's secure future. 

In this and the next issue of Financially Fit, I'm going to discuss some of these very important, but entirely avoidable money mistakes.  

Mistake #1: No Plan Means Nowhere  

The old adage, "If you fail to plan, you plan to fail," is absolutely correct when it comes to your finances. If you ask your friends and family members, I bet you would find that most of them don't have a financial plan. If queried, they will tell you, "Yes, I know I need to create a plan," "I'm working on it," or I'll get around to it." Sadly, chances are, they won't. Most of us are guilty of thinking it will just happen on its own, that when retirement rolls around, somehow we will be ok. 

IT'S JUST NOT TRUE! Just as in any other important area of life, you must establish a goal, and steadily work toward it, step by step. The goals are much more palatable if set in small increments. For example, most of us like to plan vacations. But we don't often just wake up and decide to go to Hawaii that very day. Instead, we investigate our options, plan the dates, lodging, airfare and entertainment - over time. 

Well, here's a newsflash: You plan your retirement, your children's education, your long-term care needs, in just exactly the same way - day by day. 

So, why not start out small? First, think about your long-term goals. The Internet is saturated with websites ready to assist you. In Volume 1, Issues 3, of Financially Fit, I gave readers some easy tips in creating an investment plan and in Issues 17 and 18 I listed several sites to help plan for your retirement. Take advantage of them! 

The process is simple: you figure out how much you have, how much you need, and how you are going to save and invest to get there. And then, a few dollars at a time, you begin building your nest egg. The trick is this: Always pay yourself first. I don't care if it's $5 a week. Over time, that $260 a year adds up. If you begin at age 18, at a measly 5% annual return, you will have more than $51,000 by the time you are 65! Just imagine how much more it would grow with a greater weekly allocation, invested with returns higher than 5%. 

Most people think they don't make enough money to save. But in reality, you can save on just about any salary. A very good friend of mine never made more than $50,000 a year. Now, that is decent money, but it's not a fortune. At age 51 (after raising and educating two children), he owns a home worth nearly a million dollars, with no mortgage, as well as a brand-new automobile with no loan against it. And, he has about $1,000,000 in investments. He didn't achieve this financial success by accident; it didn't just happen. He got there by planning to save - and very importantly, by planning to spend.  

Mistake #2: Vaporizing your Money 

My friend practiced the antithesis of Mistake #3, religiously. He's not much of an impulse spender, and is very practical. He doesn't buy a $4 coffee everyday, or eat out every night of the week. Instead, he prefers to make his expenditures count. He isn't a miser, though, sacrificing today for tomorrow. He owns a big-screen TV, two boats and took four vacations last year.  

However, he doesn't spend without thinking, and he always saves before he spends, paying himself first. Little by little, year after year, his plan has paid off. And it can work for you, too. Just begin by taking stock of where your money goes. You will be amazed at how much you fritter away. 

My mother is a great example of this. When she was healthy, she would go to Wal-Mart every day, spending $5-$10 on junk. After she became ill and could no longer drive, those excursions stopped. One day, she accused my sister and me of  "messing up" her checking account; there was just no way she could have that much money left over at the end of the month. We got a big kick out of that, explaining to her just how much money she was saving, by not going shopping daily! That $5-$10 a day added up very quickly. 

And it will for you, too. Just start thinking before you pull out that cash or credit card. Do you really need it? Can that money be better used for saving for some future goal? 

I have to warn you, though. It's sort of like dieting; when you begin to see the money growing (instead of vaporizing), you won't want to stop! 

Mistake #: The 'Ostrich' Attitude 

This is a real pet peeve of mine, and one that women, particularly, often struggle with: letting someone else have control of your money, without much awareness of what that person is doing with it. Many women (and men) that I know - business owners, professionals, investors I meet at my workshops - just don't have a good handle on their financial situations. 

They've entrusted their financial well-being to their husbands, sons, brokers or financial advisors. And while I'm a great believer in asking for advice, you, ultimately, are responsible for your own life. Unfortunately, this becomes a real problem at times, especially when something happens to the person who has been handling your finances. 

For years, I worked in banking, and at least a couple times a year, a widow would walk into the bank, totally mystified about her money. She didn't know how much she had, where her financial documents were kept, and sometimes, she didn't have a clue as to how to pay her bills. 

An often more significant - and costly - problem is when the person who's been handling your money doesn't do such a good job with it - either through fraud, or just ineptness. You only have to pick up the paper to see the cons and swindles perpetrated on people daily. 

Without taking a primary role in directing your funds, you are giving up your power, although you still have ultimate responsibility. And you and your money can greatly suffer through someone else's deeds. 

Consequently, you do yourself a great disservice by not being actively involved in your financial life. So, start asking questions, take control and begin educating yourself about money management, investing and saving. 

Mistake #4: Penny-wise & Pound-foolish 

I love to clip coupons. I began back in my younger years, when that $1.25 I saved weekly at the grocery store really came in handy. And I still love to use coupons. We recently moved into a 16-year-old home that requires renovation, and I was just thrilled the day I saved $75 at Bed, Bath & Beyond, because I had saved coupons! 

However, I've seen people spend hours clipping coupons they don't need, squandering time that could be better put to use actually earning money. And I love those shoppers who run to three different grocery stores, wasting $3 in gas to save $1 off a 6-pack of Coca-Cola! Your time is money; make the most of it. 

In my real estate business, I frequently see buyers and sellers who will lose out on a great deal by sweating the small stuff, like who's paying for the $300 survey, when the house is selling for $400,000. The buyer really wants the house; the seller really wants to sell it, and they will let $300 kill the deal! 

My point here is to keep it in perspective. Always consider your ultimate, overall goals, before you spend your money or time. And always keep asking yourself: Is the net result of this situation spending or saving my money or time? Then, opt for saving, almost always. 

Mistake #5: Borrowing your Way into Disaster  

Debt will absolutely kill your savings and investing plans. Interest adds up very quickly, and before you know it, you can easily pay many times the amount you intended to spend on an item. That $2,000 vacation that you can't afford may eventually cost you $3,000, if you charge it and don't pay it off for a couple of years. That's a difference of a thousand dollars. Invested over time, $1,000 will turn into serious money. 

Listen, if you don't absolutely have to have it, don't buy it! 

A little discipline here will pay off monumentally in the future, as you won't have to play the "catch-up" game when you suddenly realize you don't have enough funds to retire. 

Healthy financial management is really pretty easy, but takes some effort in the beginning, incorporating financial discipline into your life, and changing your attitude about money. To build wealth, you must accumulate money, not vaporize it.  

If you diligently avoid these five major money mistakes, you will be well on your way to a much more sound financial life. I encourage you to get started immediately. Good luck! 

Stay tuned for next week, when I'll discuss the five biggest mistakes that investors make. 

Happy Saving & Investing!

This concludes this week's issue of Financially Fit.  We encourage you to visit our website to review past issues of Financially Fit:

http://www.brokeradviser.com/newsletter.cfm


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