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How to avoid 12 common money mistakes

Everyone commits at least one of these 12 common money goofs. Here's how to save money by catching those mistakes, fixing them and continuing to learn.

By MSN Money Partner Feb 17, 2014 1:01PM

This post comes from Marilyn Lewis at partner site Money Talks News. 

Money Talks News on MSN MoneyEverybody messes up with money now and then. Ask anyone. If they're honest, they'll tell you their regrets. Maybe they moved their 401k savings into cash accounts after the stock market crashed in 2008, missing the market gains since then. Or maybe they bought a house they couldn’t afford. Or waited to start saving until age 40.

Here are 12 of the most common money mistakes and how you can keep yourself from making them.

Mistake 1: Keeping up with friends

One of the fastest ways to get into money trouble is trying to match the lifestyle and possessions of people around you. Status matters to most of us. That's the culture we live in. But playing when you can't pay? That's financial suicide. Genuinely successful people are more independent.

Better idea: Creating the life that fits you and you alone takes guts. Get your financial life under control by tracking your spending.

Mistake 2: Letting indulgences become habits

You can rationalize a small luxury because it's cheap. Spending $5 on haute coffee isn't a bad splurge once in a while. But do it every day and that $5 treat is a $150-a-month expense -- that's $1,800 a year. Just for your daily cup of joe.

Better idea: Track your spending, daily or weekly if possible. It's the hands-down best way to control it. A simple budget is easy to make and gratifying to use. Even easier is automatically tracking expenses and goals with a service like Money Talks News partner PowerWallet. By all means, treat yourself once in a while to a goodie you can afford, but then stop.

Mistake 3: Signing up and spacing out

I gifted someone a six-month subscription to Netflix awhile back. Many months after the six months had passed, I realized I'd forgotten to cancel the gift.

Office worker © Design Pics/CorbisFor some merchants, the holy grail of business is customers who sign up for ongoing monthly charges. When you do, you may forget to cancel that extra tier of cable or phone service you no longer need or the free credit monitoring trial that starts charging your credit card after 30 days. These small charges mount up.

Better idea: Read bills carefully to spot services you no longer use. Call customer service at your phone and cable companies twice yearly to review your accounts for better deals or features you can drop.

Mistake 4: Buying a new car

As soon as you leave the dealer’s lot with a new car, it depreciates 9 percent, according to Edmunds. A new car costing nearly $30,000 is worth $5,687 less in a year. New-car registration and insurance are pricier, too.

Better idea: Buy used. "These days, 100,000 miles is merely the halfway point for a lot of vehicles," says Bankrate. In fact, some used cars are better than new ones. Save the money you'd have spent and put it to work. Hang onto your car and drive it free after it's paid off.

Mistake 5: Buying almost anything else new

Why pay a premium for new books, toys, clothes, cars, tools and sports gear when you can get them for a discount used?

Better idea: Before shopping retail for a new purchase, see what kinds of deals are available on used goods. You can often find furniture, jewelry, appliances and electronics that look and work as well as new for a sliver of the new price. Of course some things -- mattresses, shoes, computers, video cameras and stuffed toys, for example -- you should never buy used.

Mistake 6: Paying interest on credit cards

If you are paying, for example, 20 percent interest on credit card balances while your savings are earning just 0.2 percent, you've got things upside down.

Better idea: Rates on credit card balances are insane. Why pay tens or even hundreds of dollars monthly to borrow when your savings are earning far less? If your job's safe and you have some money in savings to spare, use it to pay off high-interest debt. Next, rebuild your savings and pay off the entire card balance every month. Never borrow money at those rates again.

Before signing up for a credit card, comparison shop. Check competing savings account rates, too.

Mistake 7: Ignoring your employer's 401k match

You're throwing away free money if you aren't claiming every dollar your employer will contribute to your retirement plan or 401k.

Better idea: Never, ever turn down free money, not to mention that nice tax deduction you get by contributing to a traditional 401k plan. You're allowed to pay as much as $17,500 a year into a tax-deferred retirement plan like a 401k. Over 50? You can make an additional $5,500 in catch-up contributions.

Think you can't afford to put enough in to get the company's matching funds? Think again. You can't afford not to.

Mistake 8: Borrowing to buy stuff that loses value 

A new car may be your biggest depreciating purchase but there are plenty more. When you take a loan or use a credit card to buy toys -- big-screen TVs, audio equipment, video and still cameras or high-end sports equipment like new skis and boots -- you are undermining your financial health.

Better idea: Pledge to pay only cash for toys and bling, whether a snowboard or a dress for a special party. Consider dropping any expensive mindsets, too: "If you are an 'early adopter' of electronics like the new 3-D televisions, you are also paying too much for little more than bragging rights to your friends," blogs Matt Breed at Money Crashers.

Mistake 9: Chasing credit card rewards

This is a tough one. Capturing rewards points is like a game. It's fun, especially if you are working toward a goal like a free trip. But you may be overspending.

Better idea: Beware of driving yourself into a financial ditch in pursuit of "savings." The way out? Revisit your financial goals, remembering how much more important they are than chasing points. The bottom line: If you're carrying a credit card balance, it's time to cut up that card and pay it off.

Mistake 10: Living with no emergency fund

You're walking a tight rope without a safety net when you have no emergency fund. Scary, huh? But 27 percent of Americans have no emergency savings at all.

Better idea: Build an emergency cushion to cover your net take-home pay for seven or eight months. For example, if you take home $4,000 a month after taxes, your emergency fund should be $32,000.

  • Treat this fund like any other bill; contribute to it every month.
  • Put your fund where it's harder to access -- maybe a savings account (not checking) at a bank you don't use otherwise.
  • Keep saving. After you've fully funded your emergency account, use your extra cash to pay down debt or build up retirement or college savings.

Mistake 11: Letting bank fees drain your accounts

You've worked hard for your money. You don’t want it going to bank fees for overdrafts, out-of-network ATMs and checking account maintenance.

Better idea: Keep a cash cushion in accounts to avoid overdrafts, switch to a bank that offers free checking, sign up for electronic alerts to stay on top of account balances, and get cash back when you use your debit card at the grocery store to avoid out-of-network ATMs.

Mistake 12: Raiding your retirement savings

What a tempting pot of money your 401k can be, especially when an emergency strikes or you're short of cash.

Better idea: Do all you can to avoid raiding your retirement savings. You've worked hard to get this far. Besides, it'll cost you. Yes, you can borrow from your 401k, but that means that money won't be growing in your account. And the amount you borrowed will become due in full if you lose your job.

When you change jobs, don't cash out the account. You'll pay a penalty and taxes. Ask your HR department for help rolling your savings into another tax-deferred account.

What are the money bloopers you wish you could undo?

More on Money Talks News:

Mar 1, 2014 5:58PM
High priced coffee is always a target In these "How not to waste money" articles. Why not alcoholic drinks and cigarettes? Indulging these addictions can cost a fortune and cause you a lot more trouble.
Feb 18, 2014 8:31PM
Buying a used car doesn't always make sense - especially if you hold on to your cars for a decade.

Buying a used car sometimes make sense, but in this continuing Recession of the Non-Wealthy used cars have become so in demand that the prices approach new cars - particularly popular models.

I paid $18K total for new 2013 Honda Fit base automatuic a year ago and a 2011 Fit from CarMax with 27,000 miles would have cost me about $17K..  Since i expect to keep the car 15 years when it will be worth $1000 or less, the depreciation will be a little over $1000 per year.  So getting a two year old car should cost me over $2K less than a new Fit.

All good ideas that seem simple, but never hurts to reinforce them.
Mar 1, 2014 5:54PM

Buy used cars?  Sometimes, but the best cars out there have a very sticky habit of not coming down much in price.  If you buy a new Honda Accord for $26,000 you will find it hard to find a used Accord with fewer than 30,000 and it will still cost you roughly, $24,000.  It makes no sense to save $2,000 and loss out on the BEST 30,000 miles of the car's life and you will need new tires very soon afterwards.  Even not the greatest vehicles can have the same problem.  Some more expensive vehicles are out of people's price point so they force themselves to look at used vehciles.  the demand for saving a few bucks can make the resale price higher than you think it should be, but people want the SUV and want to say 3 or 4 grand and will then buy an SUV with 50 or 60 thousand miles.  It makes no sense if yo have the money. If you don't have the money buy something you can afford.

This buy used is one of those often said things that no one challenges, at their own peril..

Mar 1, 2014 8:29PM

I lease a new car every 3 years. Monthly fee is just a little more than what I was paying for internet, cable TV and phone.

Getting rid of cable TV is a good idea, paying $80.00/month for umpteen channels of crap when you can get streamed content for $8.00 a month makes no sense. I did just that and got a digital HDTV antenna for local channels CBS, FOX, NBC, ABC etc. Had Netflix since 2005.

Mar 1, 2014 8:02PM

The "never buy a new car' mantra never gets old does it ?  I'm waiting for the "my rust bucket truck has 200,000 miles and is still going strong" posts.

Drive it free after it's paid off MSN ? More like watch it start to nickel and dime you to death.

Mar 1, 2014 8:06PM
My biggest goof was getting hurt in several accidents that were not my fault and ending up on SS disability at a young age and not being able to save anything.   I had to learn at a very early age how to streach a dollar until it squealed and make every penny count just to be able to live with all the increases in price of everything.   As for saving 32 grand to equal 4 months income that is more than 2 years income for me.
Mar 1, 2014 5:33PM
Mar 1, 2014 5:11PM
I work hard and make good money, why should I not enjoy a latte?
Mar 1, 2014 8:45PM
I think this is at least the 987th time I've seen the 'don't buy fancy latte' advice. This year. If I could get all the financial "journalists" to pay me $100 every time they mention high priced latte's I'd be ******* rich.
Mar 1, 2014 6:54PM
Does anyone not know this stuff?? Knowing and doing are two dif things. Showing off and impressing people must be pretty strong forces.. or bad habits..and costly...
Mar 1, 2014 10:06PM
I say, do what ever you want with your money! Have as much fun in this life as you possible can. I've known to many frugal people that have died and somebody else got all of their money before they even had a chance to spend it doing all of the things that they said they would once they retired. SPEND IT!!!
Mar 1, 2014 5:21PM
Most seem reasonable but used clothes? I don't think so.
Mar 2, 2014 12:28AM

I live in Orange County California where there are gas stations, liquor stores, churches, and Starbucks coffee in ever corner. It always amazed me that people by the thousands go into these coffee shops and shell out this money for a cup of coffee that could cost only pennies if they would go out and buy a nice coffee maker and prepare it the night before. All one has to do is just set the timer to come on before you get up in the morning. $1800.00 dollars can buy you a nice coffee maker and lots and lots of raw coffee. it's no wonder a lot of people are upside down on things.



The condor

Mar 1, 2014 6:15PM
Mistake 13 Never spend money heavily on online multiplayer games.
Because there is always a strong possibility the developers will
shutdown the game destroying all of their players progress and
just leave them hanging for selfish reasons unknown half the time.

Multiplayer games? Very unwise investment.

I'm learning that it is better to just stick with console games.
At least my console games will be there in the morning.
Mar 2, 2014 12:32AM
Why doesn't anybody ever talk about the following? Everybody always that writes one of these articles basically just says "live within your means"....and what they are basically saying is sacrifice the things in life that make you happy because you "can't afford" them, and maybe when you're 75...if you're still alive, and the markets are kind, , you can retire with $1Mil in the bank(which let's face 30-40 years, 1Mil will be nowhere near what you would need to retire) With that mindset, you'll NEVER be able to afford them. Rather than just saying "live within your means"...why not just INCREASE your means and live the life that makes you happy?! I say this as someone who is 39 years old...already "retired" by most people's standards as I live off of the passive income I have created with my business over the last ten years....and now is almost completely passive.

I have a passive income higher than most people's 50 hour/week salaries, I stay at home with my kids and school them, I drive a Ferrari, I drink $10 lattes, I don't do the 401K thing. I could go on. When my friends were sitting around playing xBox, watching American Idol, etc...I was building an internet company. Now I own an app company. I ALWAYS seek out passive revenue streams that allow me to live the life I want. can live the life you truly want. You can afford the things in life that you have dreamed of. If you want it badly enough..and your "why" is strong enough...and you are willing to dedicate yourself to building your life the way you want, then you can do it. It may take some temporary cuts, but it doesn't have to be a lifetime of self sacrifice. Along the way, you'll screw up, you'll make bad money decisions, you'll make bad investments, I STILL do these things from time to time. BUT, the key is, just keep on moving forward...and keep pushing to increase your means and build your life despite temporary failures.
Mar 2, 2014 2:42AM
I can't believe the author had the audacity to suggest buying someone else's USED clothes. I don't care how many times you watch that ****, it will still have the previous owners DNA all over it. Secondly, it's just gross!!
Mar 2, 2014 12:30AM
#7 should be #1 and #12 should be #2
Mar 2, 2014 12:11AM

Having read a number of these on MSN I always think it is funny to see the contradictory advice and wonder if those who follow these to the letter end up flip flopping depending on which one they read. Never much of a fan of used anything so that is out, and the car thing I think others summed up below with "your mileage may vary"....the 200K bit is kinda silly though as I don't know anyone that would consider buying a used car with 100K on it and feeling it is completely reliable, not to mention all of the new ways that sellers and less than honest dealers are mucking with mileage and service histories making buying used a less attractive option.

The rest of it seems pretty "duh" worthy...don't excessively spend on needless stuff, don't go into massive debt on needless stuff, and make sure you watch what you spend other said why is spendy coffee such the target, I know far more who spend way way more on alcohol in a given week yet don't see any angst on that one.

Mar 1, 2014 7:07PM

One way to save $50 or more a month is to substitute club soda or soda water for Coke, Pepsi and  beer.  Soda water doesn't taste like coke or beer but it feels like it and it fills you up and it's a lot cheaper.  I don't drink Coke or other soft drinks but whenever I want a beer, I drink a club soda first.  Make sure it's cold and put some lemon in it.  Drinking a fiber protein shake between meals will also save you money by avoiding junk food and snacks.  Check my book, "No wonder you're fat, you don't eat enough" for some more ideas

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