June 2008 Topic - The Top Financial Mistakes Made

01.  Personal Finance Mistakes
02.  The Top 5 Financial Mistakes that Parent's Make
03.  Top Mistakes Made by College Students
04.  How to Avoid Financial Mistakes

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There is talk on a regular basis about our country being in recession and that is a subject that is debatable so I will not touch on it. With that said, I think that we call all agree our economy has taken a toll on everyone involved. In some recent polls 55% of Americans rate the economy as only "fair" or "poor" and believe it is only going to get worse. The overhang of unsold new homes remains very high. The foreclosure rate in the past year has tripled. Households face significant challenges including home prices falling, a softer job market, and higher energy prices.

There are always going to be challenges and unfortunately there are many things out of our control. We cannot control the job market, housing market or the oil prices. However, we can control what we choose to do with the cards that we are dealt. I have been very discouraged lately listening to people's complaints about everything that is going on. I believe it is very fair to say our economy is not where we would like it, yet it could be worse.

This is no excuse not to plan for the future. Many citizens are putting off saving money due to the world's financial situation. In this newsletter we will go over many financial mistakes and also how to avoid them. I hope that if you are one of the people that feel like it is not worth planning for your future right now you take this information into consideration.

1.Personal Finance Mistakes

Having no goals. Financial success doesn't just happen unless you win the lottery or dear Aunt Sally passes away and leaves you a huge inheritance. Most people have to work at it and figure out how to achieve it. First step is figuring out exactly what you want and then putting it in action and deciding how to get there. Your financial future depends on you. You are the only one who can be successful. It takes focus and a lot of dedication.

Not admitting there is a problem. Many of us live beyond our means and are not willing to change that. It seems the more we make is the more we spend. Budgeting is key here to being financially secure. Instead of spending $600 a month on a car payment take half of that and invest it for your retirement. You may not drive the car of your dreams, however you will be happy later in life when you are financially stable.

Making only minimum payments on credit cards. I understand that times are rough now with our economy. Consumers are depending on credit cards for daily needs. It is easier to make that minimum payment on the card every month. The issue with this is that the bill will never go away. Credit card companies encourage borrowers to make the minimum payment. Borrowers who do not pay extra money monthly will be in debt for years to come and make credit card companies very rich. Remember you will be getting interest all the months you have a balance on that card. If you have a $3,000 balance with a 19.9% APR and make minimum payments every month it will take you over 20 years to pay that off.

Overinvesting in company stock. A lot of employees invest in stock as a retirement option. This is a high risk gamble. Let's rewind to 2001 when Enron stock went from $90 a share to 0. Employees lost about $1 billion in savings when that happened. Financial advisors recommend having no more than 20% of your retirement money in company stock.

Buying more house than needed. Bigger is not always better in this case. It is the American dream to have a huge house with a large family and the white picket fence. You will end up paying more for maintenance, utilities, and taxes. This will end up straining you financially. No one should be house poor.

New cars. Millions of consumers buy new cars each year. Few buyers can actually afford to buy the car in cash, therefore take the route of financing. The issue with financing a car is that the buyer is paying interest on a depreciating asset. Furthermore car owners more times than not trade in the car before it is paid off losing even more money.

2. The Top 5 Financial Mistakes that Parent's Make

1. Buying the wrong life insurance or none at all.
Contrary to popular belief it is not unaffordable to purchase life insurance in your younger years. It is imperative to have a life insurance policy for children gods forbid something happen and they are left on their own. The question is how much is enough? There are different ways to calculate this number. The easiest way is to multiply your income by eight. In other words if you make $50,000 annually then you should carry a $400,000 plan. You want to take into consideration other assets or debts such as a mortgage or college. Everyone's situation is different and you should contact a professional to be sure just how much insurance would be recommended. Now you must give special consideration to a stay at home parent. It is often believed since this person does not contribute financially that life insurance is not needed. However, if the caregiver of the children passed away the children would need to be placed with someone else or in a day care which can get quite costly. Life insurance for this person should be able to cover all and any expenses associated with providing care for the children.

2. Not obtaining disability insurance.
Many of us do not even know what disability insurance is or how to obtain it. This type of insurance can actually be a lot more useful than life insurance. Say you get into a terrible accident and are injured severely how will you support yourself? Life insurance is not going to help you out. Reality is younger people all have a better chance of being disabled than actually dying. This insurance should be able to replace at least 60% of your income. It is usually paid on a monthly basis. Amazingly enough it is very affordable to obtain.

3. Waiting to put together a will.
Parents who are young often feel healthy and at times invincible. Younger people don't really have death on their minds therefore postpone doing a will. This is a task that should be taken care of immediately. It will protect your assets and your children in the future. A will should not only include your assets, but most importantly who cares for your children should anything happen to you. Without a will in place the state decides who manages the finances and who will raise the children. Wills can be costly if you go through an attorney so if money is the issue buy a premade will and fill it out and get it notarized.

4. Do not forget to save for retirement!
I know the mindset of young parents. Young parents tend to think we are young; raising a family, trying to get daily expenses covered who can think of retirement? Well please be advised before you know it the children will be grown and retirement will be around the corner. Nowadays, major companies offer different retirement plans such as 401(k). Take advantage of any retirement savings plans offered to you through your company. Putting retirement on the back burner in essence will affect your children who will be faced with the burden of financing their parents late in life.

5. Don't wait to save for college.
Put money away while the children are young for college. A false assumption that is made is that financial aid is "free money". This is not true at all 56% of financial aid is in the form of loans, which means it must be paid back. Everyone should put some money away for college for their children. Some states offer prepays programs. For instance, Florida has a payment plan for college called Florida Prepaid. Basically the way it works is you make monthly payments from the time the children are young for a certain amount of time and when the child is ready to go to school a majority of it is paid for. The drawback to these programs is not all schools honor it. Look around your area and see what is offered and take full advantage of it.

3. Top Mistakes Made by College Students

Using your student loan money for everything, but school. Students often times use the loan money for personal things or entertainment. This money should be paying for your books, tuition and room and board. Remember it does need to get paid back so use it wisely. Unfortunately a lot of us will be paying it back for years to come.

Credit card debt. It happens to the best of us we use our credit card a lot more than necessary. I am sure most of us can say that the bills got a lot higher than we expected very quickly. Now adults have an income and can make monthly payments on debt. Imagine for a moment when you were in college could you have afforded to make payments every month on it? Probably not which is why most students graduate with over $7,000 in credit card debt. Keep in mind if a credit card payment is missed or late hefty fees are attached to it. A credit card that had a $5,000 balance and has not been paid in a couple months now most likely has a $5,500 balance. It is a vicious cycle especially for students who don't have the means to keep up with payments.

Lack of Budgeting. If you are in college and have endless funds consider yourself really lucky. Most college students are living on financial aid money, loan money or family members therefore are on a fixed income. Budgeting is key to getting your financial responsibilities taken care of and still having "fun" money. College students, or anyone for that matter, need to sit down and figure out exactly how much money needs to be allotted to everything. After all the financial responsibilities are paid for the rest of the money can be used for luxuries.

Going right into a 4 year university. Universities are a lot more expensive than community colleges. Try to get all your prerequisite classes done at a community college and then transfer to the university. It is unbelievable how much money doing this will save.

4. How to Avoid Financial Mistakes

Weigh it out and look for the catch. It never fails every weekend in the circular some store is advertising the "greatest sale of the year". Consumers tend to justify spending money when getting a bargain. The question is though what really is a bargain. Is it worth driving 20 miles to save two dollars on a product? Probably not so try to look at the big picture. Nowadays, with gas prices many people search for the "bargain". The problem is the gas 15 miles away may be 5 cents cheaper per gallon but you are wasting it driving there.

Be smart about phone lines. Ten years ago it was very uncommon for someone to have a cell phone and no landline. However, with technology today many homes only have cell phones. With both spouses taking on financial responsibilities it is likely no one is home throughout the day. It may not make sense to pay for a land line that is barely used. It is a great way to cut expenses, yet on the other hand it can skyrockets costs. Most cell phones have a payment and minute plan. If you exceed the amount of minutes you use your bill can increase dramatically. Be cautious when using your cell phone. If there is a phone call that is going to last for an extended period of time make it during the off hours when you are not charged.

Check and improve your credit report regularly. The better credit rating you have the more discounts you are eligible for. For instance, mortgage rates are lower for homeowners with good credit. The savings on your mortgage alone could be hundreds or even thousands a year. It is worth the legwork to improve your credit to save some money. Other discounts for good credit are car insurance and lower interest rates on your credit cards or loans.

Don't budget too strict. Let me give you an analogy anyone who has ever gone on a strict diet has probably gotten frustrated and cheated a lot. As Americans we do not like to be restricted or told what to do all the time. The same goes for budgeting. If you budget yourself to the penny and allow for no wiggle room your budget will most likely fail. The key to budgeting is the same as dieting allow yourself to cheat every now and then. For instance, leave an extra $60 every week to do what ever you want to do with it. I urge you all to get a daily spending journal for one week. Basically this will give you an idea of every penny you spend. The realization will come that you would have extra money left over at the end of the week if you did not buy the magazine at the supermarket checkout counter 3 mornings last week. Every penny adds up and by keeping the daily spending journal you will see where the "extra" money goes.

Know what your spouse is doing. It is common for one of the spouses to handle the finances in a home. However, it never fails to amaze me how in the dark the other spouse is. I understand we should trust who ever is handling the money, but there may be financial decisions that you have input on that you are not even aware of. More importantly, if something happened to the person in charge of finances someone has to be able to assume that role. Pay your credit cards on time. Letting your bills pile up is going to get you more in debt. Interest and fees will be added to your existing balance if these accounts are not paid on. Be sure to be organized and know when your bills are due. If you are on a 0% rate for a fixed amount of time it is imperative to pay those on time. If a payment is late or missed the interest rate will go up very high.

Got a question? Then contact our Education Team on 561-883-2398 Ex.310 United conducts regular seminars on financial education, including "How to Budget", come along and join us. To reserve your seat contact our Education Team on 561-883-2398 Ex.310

Newsletter 06
Rev.1
June, 2008