5 critical money mistakes to avoid this year

So you bought a $4 latte for the fourth time this week. Or maybe you forgot to bring the coupon for your kid's favorite cereal to the grocery store. Most of us make money mistakes all the time (even personal finance bloggers are no exception!), but some of them matter more than others. We here at WalletPop interviewed experts in saving, spending, borrowing and investing to find out the biggest mistakes people make when it comes to their hard-earned money. Thousands of people will make these very mistakes in 2010. Just don't be one of them.

Not having life insurance. "If there's anyone who depends on you financially, get term life insurance," says Gail Hillebrand, an attorney with Consumers Union, the not-for-profit organization that publishes Consumer Reports and the blog Consumerist.com. "If you have a spouse or dependent kids, they'll have money worries if you're gone," she points out. It's an uncomfortable topic to think about, which is probably why it's something many Americans put off until it's too late, she adds. Even if you're a stay-at-home parent, you need life insurance, because if anything happened to you, child-care costs would come into play.

So how much is enough? Roughly five times your annual salary, says Hillebrand. The idea isn't that your surviving spouse or dependents would spend the money; rather, you want an amount that's large enough for them to invest and be able to live in a manner to which they're accustomed off the returns.

Being late with a credit card payment. This is just an all-around bad thing to do. "Especially now, it's the biggest mistake you can make," says Jeanette Pavini, a household savings expert at Coupons.com. Your credit score gets dinged, you get slapped with a nasty late fee and your interest rate will probably zoom up -- not just on the card whose payment you sent in late but possibly on your other ones, too. (That practice, called "universal default," will be forbidden under the new CARD Act, but it's still in practice now, so watch out!)

At WalletPop, we hear from a lot of people who are having trouble right now making ends meet, and for many of them, their spiral into financial trouble began when they started paying their credit card bills late. It's a sad story, and it's one we've heard many, many times: Those rate hikes and fees add up faster than anyone thinks they will, until consumers find themselves deeply in debt.

Buying a company's stock just because you like what it sells. There are a host of investment strategies out there, and experts will argue themselves blue in the face about why one is better than the other. But they're in agreement when it comes to this tip, which was shared with WalletPop by Adam Mesh, author of The Average Joe's Ultimate Beginner's Guide to the Stock Market. (If his name sounds at all familiar, it's because he was also on the NBC reality show Average Joe.)

"If you like Starbucks coffee or Apple iPods, great, but you don't want to focus on the name," Mesh advises. Plenty of companies have great products or services, but there are so many other factors that contribute to a stock's day-to-day price and its long-term value that you could end up losing money anyway. Do your homework and expand your investment strategy beyond the facile.

Not having an emergency fund. "The biggest mistake I've noticed is that while a lot of people know it's important to have a 401(k), they forget to focus on an emergency savings fund," says Clarky Davis, a personal finance expert who offers advice under the moniker "the Debt Diva" for media outlets like Oprah.com and ABC News. "A 401(k) can't match the security of an emergency fund," she points out, since there are steep penalties for taking money out of a 401(k) early. Also, that 401(k) is money you're going to need to live on once you leave the workforce, so raiding it now deprives you of the chance to build up that nest egg.

Davis adds that it's not necessary to set aside a huge amount every month. Too many people get intimidated by the idea of having three or six months' worth of expenses saved up and never take the first step toward creating a rainy-day fund, she says. "Start small, even if it's just change every week," she advises. "You've got to do what you've got to do and not think that you're a failure for not having a huge pile of money saved up."

Buying lunch instead of brown-bagging it. "People tend to waste money on the day-to-day items," says Jeanette Pavini. The chief offender, according to her research? Workday lunches. "People don't stop and look at exactly how much they're spending," she says. A quick for-example from Jeanette: "Your average cost of lunch out is around $6.50, and that can be even higher, depending on where you live. But on average, it only costs between $1.37 and $1.80 to make and bring your lunch from home, regardless of where you live." So stock up on cold cuts or salad greens, and make that noontime deli trip a special treat instead of a daily occurrence.
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