11 Common Money Mistakes You Don't Want to Make

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Getty ImagesBudgeting is excellent for your finances, but many people forget to set a long-term budget.
By Kimberly Palmer

It's hard to make smart money choices all the time, but at​ the very least, you can avoid some all-too-common -- and expensive -- errors. Whether it's budgeting by the month, instead of the year, or forgetting to save for future emergencies, these mistakes can mess with your finances unless you take steps to correct them. Here are 11 blunders almost everyone makes and how to stop yourself from falling into the same trap:

1. Budgeting for the short term. Research suggests that creating an annual vs. monthly budget works best, ​largely because we feel less confident in our annual estimates, so we tend to add more cushioning for unexpected expenses. In ​a 2008 study, college students underestimated their monthly expenses by 40 percent but overestimated their annual expenses by 3 percent.

2. Overspending on housing. It's almost impossible to get ahead financially unless you save a significant chunk of your income -- ideally $1 of every $3 you earn. But many people get tripped up by their housing costs. Traditionally, financial advisers have encouraged buyers to spend about one-third of their income on housing. But for many people, especially anyone with student loan debts, child care payments or other hefty expenses, that's too much money.

3. Skimping on career investments. Investing in a career coach or development course can help you snag a promotion, get "unstuck" from a career rut or transition into your dream job. The price of one-on-one coaching typically starts at around $200 an hour, but less formal advice can come from meeting with experienced colleagues over lunch or coffee.

4. Spending for the reward. Rewards credit cards sound good in theory, but in reality, they encourage you to spend more than you would otherwise. Economists dub this phenomenon "purchase acceleration," because you ramp up your spending when that reward is in sight. Rewards cards also tend to carry a higher interest rate than non-rewards cards.

5. Failing to negotiate prices. Even department stores often offer some wiggle room on their posted prices, and big-box stores usually match competitors' prices. Research online ahead of a shopping trip so you know what other retailers are currently offering. Many consumers fail to realize that prices are flexible and don't bother asking for a better deal.

6. Earning income from only one source. Few workers hold onto the same job or work for the same company their entire careers these days. While some job changes are voluntary, many also come from layoffs. By earning income from a variety of sources, workers can increase their financial stability. Options for new sources of income include freelance work, selling crafty creations online or offering coaching services in your area of expertise.

7. Taking on too much, or too little, debt. Not all debt is bad. It can enable you to return to school, buy much-needed professional outfits before receiving your first paycheck or even cover your rent during a tough month. Being so afraid of debt that you avoid it altogether can force you to miss out on opportunities, while taking on too much can lead to financial ruin.

8. Trying to beat the market. Timing the market would require a "Back to the Future"-style time machine. That's why investing a little bit at a time, regardless of the market's behavior, is the safest way to go. Retirement accounts like 401(k)s that automatically transfer money from your paycheck each month make it easy to invest this way.

9. Paying too much attention to the Dow. Focusing too much on the ups and downs of the market just causes stress. When the market's plunging, focus on your hobbies, family and getting outside instead. Avoid cable television news, which often treats every dip in the market like a major crash. If your investments are well-diversified, then you've done all you can.

10. Counting on Social Security. Just as today's 30-somethings start thinking about retirement in 2033​, the Social Security trust fund is scheduled to run out. If nothing changes, benefits will shrink to about three-quarters of what they are now, because only money that is being paid into the system will be paid out. ​That means young professionals need to plan on funding the bulk of their retirement with their own savings.

11. Overspending on gifts. Instead of splurging on gifts you're not even sure people really want, why not give recipients something handmade (and filled with love), like baked goods or a coupon to spend time together. You can also consult websites like​ Pinterest or Craftster.org to find unique DIY gift ideas.

Kimberly Palmer is a senior editor for U.S. News Money. She is the author of the new book, "The Economy of You." You can follow her on Twitter @alphaconsumer, circle her on Google Plus or email her at kpalmer@usnews.com.
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