Each one of us tries very hard to invest well, to save for rainy and post-retirement days. Some people do well, and some people make some very costly mistakes. Here are a few mistakes that you should avoid:
1. Putting all your eggs in one basket.
Do not invest everything you have in company stock. If by any chance the company fails, you could be wiped out. Put a ceiling on such investments, of about 10% - 15% and look into some foreign stocks. The key here is diversity!
2. 401(k) funds are for retirement. Keep it that way!
Many people tend to wipe out these saving when they change jobs. Fight the temptation to cash in your 401(k) funds. Just to give you an idea, $1,000, at a 7% return and matching funds from your company, will give you a whooping $153,110 at the end of 30 years.
3. Using 401(k) is not for college expenses.
Do not use your 401(k) for paying for your children’s college education. Take out a loan for that. Your children can take loans later; you cannot - after retirement.
4. Tax-free bonds – NOT such a great idea!
Don't invest in tax-free bonds and variable annuities for your IRA. Instead, use the allocated funds for purchasing monthly mutual funds shares. In this way, you'll end up buying more when the prices are down, and less when the prices are up on the shares.
5. ARM Vs. Fixed rate mortgage.
Contrary to common belief, an adjustable rate mortgage is not a good idea over a long period. A fixed rate is best – ideally a 30 year fixed rate – and forget about worrying about raising rates.
6. More than two credit cards – a recipe for disaster!
Be wise; do not apply for more than 2 credit cards, lest you will be tempted to run up too much in debt.
7. Why insure kids? Insuring your kids is a waste of money.
Rather channel the money into a disability insurance that will help you in time of need. Statistics show that there are about 30% chances that you might have a disabling accident at work. These are serious odds that need to be taken seriously! Choose a policy – if you are not already insured at work – that pays you about 75% of your income until you are 65.
8. Tax refunds can help you with cash.
Try to adjust as much as can your withholding; this will be comparable to an interest-free loan. Check this out with the irs.gov calculator. Also, always sell poor performing stock.
9. Pay attention to medical bills.
Whenever you have to undergo medical treatment, contact your insurer and find out what is the "usual and customary" amount for that particular procedure. Armed with this knowledge, request that your doctor match it. You'll be surprised – pleasantly – to find that most doctors will agree!
10. Stop buying premium gas.
Contrary to common belief, the "premium" does nothing more than burn a hole in your pocket!