Common Mistakes Made With Money and How to Avoid Them

Everybody makes mistakes with their money. The important thing is to keep them to a minimum. And one of the best ways to accomplish that is to learn from the mistakes of others. Here is our list of the top mistakes people make with their money, and what you can do to avoid these mistakes in the first place.

1.  Buying items you don't need...and paying extra for them in interest. Every time you have an urge to do a little "impulse buying" and you use your credit card but you don't pay in full by the due date, you could be paying interest on that purchase for months or years to come. Spending money for something you really don't need can be a big waste of your money. But you can make the matter worse, a lot worse, by putting the purchase on a credit card and paying monthly interest charges.

Research major purchases and comparison shop before you buy. Ask yourself if you really need the item. Even better, wait a day or two, or just a few hours, to think things over rather than making a quick and costly decision you may come to regret.

There are good reasons to pay for major purchases with a credit card, such as extra protections if you have problems with the items. But if you charge a purchase with a credit card instead of paying by cash, check or debit card (which automatically deducts the money from your bank account), be smart about how you repay. For example, take advantage of offers of "zero-percent interest" on credit card purchases for a certain number of months (but understand when and how interest charges could begin).

And, pay the entire balance on your credit card or as much as you can to avoid or minimize interest charges, which can add up significantly.

If you pay only the minimum amount due on your credit card, you may end up paying more in interest charges than what the item cost you to begin with. Example: If you pay only the minimum payment due on a $1,000 computer, let's say it's about $20 a month, your total cost at an Annual Percentage Rate of more than 18 percent can be close to $3,000, and it will take you nearly 19 years to pay it off.

2.  Getting too deeply in debt. Being able to borrow allows us to buy clothes or computers, take a vacation or purchase a home or a car. But taking on too much debt can be a problem, and each year millions of adults of all ages find themselves struggling to pay their loans, credit cards and other bills.

3.  Learn to be a good money manager. Also recognize the warning signs of a serious debt problem. These may include borrowing money to make payments on loans you already have, deliberately paying bills late, and putting off doctor visits or other important activities because you think you don't have enough money.

If you believe you're experiencing debt overload, take corrective measures. For example, try to pay off your highest interest rate loans (usually your credit cards) as soon as possible, even if you have higher balances on other loans. For new purchases, instead of using your credit card, try paying with cash, a check or a debit card.

There are also reliable credit counselors you can turn to for help at little or no cost. Unfortunately, you also need to be aware that there are scams masquerading as 'credit repair clinics' and other companies, such as 'debt consolidators', that may charge big fees for unfulfilled promises or services you can perform on your own.

4.  Paying bills late or otherwise tarnishing your reputation. Companies called credit bureaus prepare credit reports for use by lenders, employers, insurance companies, landlords and others who need to know someone's financial reliability, based largely on each person's track record paying bills and debts. Credit bureaus, lenders and other companies also produce "credit scores" that attempt to summarize and evaluate a person's credit record using a point system.

While one or two late payments on your loans or other regular commitments (such as rent or phone bills) over a long period may not seriously damage your credit record, making a habit of it will count against you. Over time you could be charged a higher interest rate on your credit card or a loan that you really want and need. You could be turned down for a job or an apartment. It could cost you extra when you apply for auto insurance. Your credit record will also be damaged by a bankruptcy filing or a court order to pay money as a result of a lawsuit.

So, pay your monthly bills on time. Also, periodically review your credit reports from to make sure their information accurately reflects the accounts you have.

5.  Having too many credit cards. Two to four cards (including any from department stores, oil companies and other retailers) is the right number for most adults. Why not more cards?

The more credit cards you carry, the more inclined you may be to use them for costly impulse buying. In addition, each card you own — even the ones you don't use — represents money that you could borrow up to the card's spending limit. If you apply for new credit you will be seen as someone who, in theory, could get much deeper in debt and you may only qualify for a smaller or costlier loan.

Also be aware that card companies aggressively market their products on college campuses, at concerts, ball games or other events often attended by young adults. Their offers may seem tempting and even harmless — perhaps a free T-shirt or Frisbee, or 10 percent off your first purchase if you just fill out an application for a new card — but you've got to consider the possible consequences we've just described. Don't sign up for a credit card just to get a great-looking T-shirt. You may be better off buying that shirt at the store for $14.95 and saving yourself the potential costs and troubles from that extra card.

6.  Not watching your expenses. It's very easy to overspend in some areas and take away from other priorities, including your long-term savings. Our suggestion is to try any system — ranging from a computer-based budget program to hand-written notes — that will help you keep track of your spending each month and enable you to set and stick to limits you consider appropriate. A budget doesn't have to be complicated, intimidating or painful — just something that works for you in getting a handle on your spending.

7.  Not saving for your future. We know it can be tough to scrape together enough money to pay for a place to live, a car and other expenses each month. But experts say it's also important for young people to save money for their long-term goals, too, including perhaps buying a home, owning a business or saving for your retirement (even though it may be 40 or 50 years away).

Start by "paying yourself first". That means even before you pay your bills each month you should put money into savings for your future. Often the simplest way is to arrange with your bank or employer to automatically transfer a certain amount each month to a savings account or to purchase a Savings Bond or an investment, such as a mutual fund that buys stocks and bonds.

Even if you start with just $25 or $50 a month you'll be significantly closer to your goal. The important thing is to start saving as early as you can — even saving for your retirement when that seems light-years away — so you can benefit from the effect of compound interest. Compound interest refers to when an investment earns interest, and later that combined amount earns more interest, and on and on until a much larger sum of money is the result after many years.

Banking institutions pay interest on savings accounts that they offer. However, bank deposits aren't the only way to make your money grow. Investments, which include stocks, bonds and mutual funds, can be attractive alternatives to bank deposits because they often provide a higher rate of return over long periods, but remember that there is the potential for a temporary or permanent loss in value.

8.  Paying too much in fees. Whenever possible, use your own financial institution's automated teller machines or the ATMs owned by financial institutions that don't charge fees to non-customers. You can pay $1 to $4 in fees if you get cash from an ATM that isn't owned by your financial institution or isn't part of an ATM "network" that your bank belongs to.

Try not to "bounce" checks — that is, writing checks for more money than you have in your account, which can trigger fees from your financial institution (about $15 to $30 for each check) and from merchants. The best precaution is to keep your checkbook up to date and closely monitor your balance, which is easier to do with online and telephone banking. Remember to record your debit card transactions from ATMs and merchants so that you will be sure to have enough money in your account when those withdrawals are processed by you bank.

Financial institutions also offer "overdraft protection" services that can help you avoid the embarrassment and inconvenience of having a check returned to a merchant. But be careful before signing up because these programs come with their own costs. Whenever possible, use your own financial institution's automated teller machines or the ATMs owned by institutions that don't charge fees to non-customers.

Pay off your credit card balance each month, if possible, so you can avoid or minimize interest charges. Also send in your payment on time to avoid additional fees. If you don't expect to pay your credit card bill in full most months, consider using a card with a low interest rate and a generous "grace period" (the number of days before the card company starts charging you interest on new purchases).

9.  Not taking responsibility for your finances. Do a little comparison shopping to find accounts that match your needs at the right cost. Be sure to review your bills and bank statements as soon as possible after they arrive or monitor your accounts periodically online or by telephone. You want to make sure there are no errors, unauthorized charges or indications that a thief is using your identity to commit fraud.

Keep copies of any contracts or other documents that describe your bank accounts, so you can refer to them in a dispute. Also remember that the quickest way to fix a problem usually is to work directly with your bank or other service provider.

Home Improvement Tips to Increase the Value of Your Home

Buying a home may be a dream, but the initial purchase is only the introduction to that dream. There's always something about your house that could be a little better, a little closer to perfect. Now, with a little planning, you can bring your home closer to your dream of perfection.

Reasoning Your Redo

Many home improvement projects begin with someone in the household saying, "Wouldn't it be nice ...?" What follows may be a wish for a remodelled kitchen or a room addition with space to accommodate every family member's needs. However, reality usually intrudes upon this daydream: There's only so much money and so much space. The trick is turning your dreams into reality. Start by evaluating your needs. Most homeowners consider home improvements for one of these reasons.

• You need to update the out-of-date. If your kitchen still sports appliances and decor from decades past, now may be the time to make it current.
• You need to replace fixtures or appliances. Sometimes a home improvement project grows out of an immediate need to replace broken or inefficient fixtures. If the sink, tub or toilet has to be replaced, many people take the opportunity to refurbish the entire bathroom.
• You're selling your home. You want to be sure you'll get top dollar from the sale of your home, and that may be the rallying cry for some home improvement projects.
• You're staying put. You thought about moving, but now you realize that improving your present home is a better option.
• Your family has grown and you need more space.

Improving to Move or Improving to Stay

You need to evaluate your plans carefully if you're improving your home to put it on the market. Cutting corners could hurt rather than help your prospects, but you don't want to go overboard either. Potential buyers may not want to pay for the extras you have included, such as a hot tub or pool. It's best to keep changes simple.

Also keep in mind that people viewing your house may not share your tastes and therefore won't necessarily appreciate the time and effort you put into finding just the right shade of green paint for the walls.

Improving to sell is easier if you mentally put yourself on the other side of the proverbial fence: What is important to the home buyer? Here's a list of remodeling projects that buyers are likely to find valuable:

• Adding or remodeling a bath
• Improving the kitchen
• Adding a new room
• Landscaping
• Adding a bedroom
• Adding or enclosing a garage

If you're remodeling in order to stay in your home, you still need to avoid over improving it. You'll probably sell someday, and even if your house is the best on the block, you may have a hard time convincing buyers to pay extra for the things you found so important. Keep the value of other homes in the area in mind whenever you consider improvements. Your home's value should be no more than 20% above the average. That means a $10,000 kitchen improvement project might be a better idea than a $10,000 hot tub, especially if no other homes in your area have hot tubs.

Home Maintenance

Unfortunately, some home improvement projects get started because something is broken. A leaky plumbing fixture may be the first step to a major bath remodeling. After all, if the tub has to be replaced, why not do the whole room?

While that's certainly one reason to remodel, you'll generally want to avoid basing your home improvement projects on immediate need. Proper maintenance will help to minimize problems. Go over every part of your home at least once a year. Check out the roof, plumbing, electrical wiring, etc. As soon as you notice a problem, fix it. Early attention to repairs will help you avoid a larger expense later on. Remember maintenance does not add to the value of your home. Repairs, generally, are not improvements but necessities.

Hiring Help

Let's face it, home projects can be expensive. You may be tempted to tackle them yourself as a way to save money. For small projects, that may be a smart move. You don't have to wait for someone else to fit your house into their schedule, and you can take pride in doing the work yourself. Unless you're particularly handy, however, large home improvement projects are better left to the pros. If you're remodeling the kitchen, ask yourself if you can handle the plumbing, electrical and carpentry work. And don't forget that you need to finish it all quickly, because in the meantime you'll be without a kitchen and eating out can be costly. Keep in mind, do-it-yourself jobs generally take more time and you're responsible for obtaining the necessary permits and inspections.

Hiring people who have experience can save you money and time, too. For example, these professionals can help you get a custom look using stock products, and that can be a significant savings. Getting something done right--the first time--will give you value that lasts for years.

Word-of-mouth is a good way to start looking for home improvement specialists. Check with friends, business associates and neighbors for recommendations. Always ask for at least three references - and check them out. Check, too, with your local chapter of the Better Business Bureau or Chamber of Commerce. You can find the number in the community services section of your telephone book. Make sure everyone is in agreement about design, schedule and budget. Get the details down in writing in a signed contract. You'd also be wise to check on professional certifications and licenses, where required, and insist that any contractors you hire are fully insured and bonded. Contact your town or city Building Department for information. In particular, make sure contractors carry workers' compensation insurance so that if any workers are injured on the job, you won't be held liable. Ask for a copy of their insurance certificates. Also make sure that you or the contractor secure any necessary permits before beginning the work. Contact your local Planning and Zoning Commission for information.

Here's a quick overview of some of the pros you may work with in remodeling your home:

Architect: These professionals design homes or additions from the foundation to the roof. If you're planning structural changes--adding or taking out walls, for example--or anticipate a complex design, you'll probably want an architect. You may pay an hourly fee or a flat fee. Be sure to get an estimate of the total cost: It can take 80 hours or more to draw up plans for a major remodeling project.

Contractor: This person oversees the nuts-and-bolts aspects of your home improvement project, such as hiring and supervising workers, getting permits, making sure inspections are done as needed and providing insurance for work crews. You may wish to get proposals from one or more reputable contractors, based on specific details of your project. Be sure each contractor bids on exactly the same plan for comparison purposes. Once you've chosen a contractor, make sure your contract specifies that you will pay in several stages. It's customary to pay one third when the contract is signed so that the contractor can buy supplies. The number and timing of other payments depends on the size of the job, but do not make final payment until all work is successfully completed, inspected and approved.

Interior Designers: These specialists offer advice on furnishings, wall coverings, colors, styles and more. They can help save you time (by narrowing down selections) and money (from the professional discounts they might receive). When meeting with an interior designer, be sure to talk about your personal style and preferences. Expect to pay anywhere from $50 to $150 per hour, or you may negotiate a flat fee of perhaps 25% of the total project cost.

Financing Repairs

Depending on the scope of your home improvement plans, finding funding may be a project itself. If the project is small, you may be able to save for it from your regular household budget. For larger projects, you'll probably need to borrow money. If you participate in a 401(k) or 403(b) plan at work, you may be able to get a short-term loan from your account. To find out if this option is available to you and to learn about any tax implications, talk to your benefits administrator. Another possibility is borrowing against the cash value of your life insurance policy. If you're interested in finding out more about this type of loan, talk to your life insurance agent.

To take out other types of home improvement loans, head to your local bank, savings and loan, or credit union. Compare interest rates, repayment options and penalties from lending institutions before deciding on one of the following options:

Second mortgage: This is a loan against the equity in your home. It is, in essence, an additional mortgage. Typically, financial institutions will let you borrow up to 80 percent of the appraised value of your home, minus the balance on your original mortgage. For example, if your home is appraised at $100,000 and your current mortgage balance is $70,000, you may be able to borrow $10,000 by way of a second mortgage. You may also incur all the fees normally associated with a mortgage - closing costs, title insurance and processing fees. Talk to your tax advisor about whether the interest on a second mortgage may be tax-deductible.

Refinancing: This involves paying off your old loan and taking out a new mortgage on your home. To refinance, generally you'll need to have equity in your home, a solid credit rating and a steady income. You'll incur all the closing costs that go along with getting a new mortgage, so unless you're doing extensive remodeling and can get a mortgage interest rate at least two points less than you're currently paying, this type of loan may not be for you.

Home Equity Line of Credit: Like a second mortgage, a home equity loan lets you tap up to about 80 percent of the appraised value of your home, minus your current mortgage balance. Since it's set up as a line of credit, you won't be charged interest until you make a withdrawal, but you will have to pay closing costs. You can make withdrawals gradually as you start paying contractors and suppliers. The interest rate charged is usually variable and may be based on the outstanding balance. Make sure you understand the terms of the loan. If, for example, your loan stipulates that you need to pay interest only for the life of the loan, you'll have to pay back the full amount borrowed at the end of the loan period or you could lose your home. The interest on home equity loans may be deductible; talk to your tax advisor.

Unsecured Loan: Although the interest rates charged are often higher and you generally will not be able to get a tax deduction for the interest paid, the costs of obtaining an unsecured loan are usually lower. The relative ease of obtaining this type of loan makes it popular for small projects costing $10,000 or less. The lender will evaluate your application based on credit history and income.

Be House Smart: You'll be happiest with the outcome of a home improvement project if you plan carefully and do your homework. Armed with the information in this pamphlet and a realistic idea of your needs and budget, you'll find your home getting closer to your dream of perfection.