While we all make financial mistakes over the course of our lifetime, there are certain steps you can take to avoid making a major blunder that may cost you and your family dearly. According to the February issue of Consumer Reports, there are seven key “money stumbles” that are easily preventable with a little knowledge and planning. Such financial missteps include:
- Not updating wills and beneficiaries.According to Consumer Reports, a whopping 86 percent of Americans hadn't updated their wills or other estate-planning documents within the previous five years. Even if you’ve experienced no major life changes, once a year, check your beneficiary designations in your will, insurance policies, investment accounts, and retirement plans to ensure your investment company, life insurer and employer still have the proper information.
- Not sharing information with family.The Consumer Reports survey revealed that in only 30 percent of households did both spouses know major details about the family's finances and where to find account information. Designate a safe, file cabinet, or safe-deposit box to hold all important documents and account-access information.
- Mistakes on 401(k)s. About two-fifths of respondents set aside 6 percent or less of pretax income in defined-contribution retirement accounts, most likely missing out on free employer matches. Ninety-one percent never reviewed fund expenses within their plans, though those expenses play a major role in investors' returns.
- Under-insuring.A mere 36 percent of homeowners had purchased extended coverage on their homeowners insurance that covered the full replacement value of personal property. Only 20 percent of survey respondents had umbrella coverage to protect them from liability lawsuits.
- Not planning for emergencies.More than 70 percent said they didn’t have an emergency fund that could cover three to six months of living expenses; 77 percent had not stored important financial information and contacts in a secure place.
- Not checking credit reports. Four out of five respondents don’t review their three credit reports at least once a year, though they’re free and indispensable.
- Mismanaging debt. Almost one-fifth of those surveyed had revolving debt on credit cards of at least $10,000. Of the almost one-quarter of respondents who were in debt for education loans, 47 percent had taken more costly private loans.
If you’ve made any of the above mistakes, rest assured, you’re not alone. In a recent online survey of Consumer Reports Money Adviser subscribers, 62 percent reported having made a big financial mistake at some point in their lives. Of those, 63 percent said the error cost them $10,000 or more.
Thankfully, mistakes can be rectified! Start the New Year off on the right financial foot.
