The Five Money Mistakes You Don't Know You're Making
Make the following five critical money mistakes, and you -- or your family -- could wind up paying for it.1. Not Checking Your Bank Account History
Checking your credit reports for free with annualcreditreport.com is a great first step, but even that comprehensive program, which lets you get one report from each of the three bureaus every year, doesn't cover all the financial bases. You should be checking your bank account history, too.
Before a bank will let you open an account, it runs your history through a database maintained by ChexSystems, which keeps tabs on everyone who's bounced a check or abandoned an overdrawn account. If you've ever tried to open a bank account and been denied, chances are there was something negative in your ChexSystems file.
"Most people don't realize it's even there until it's an issue," says Denise Winston, founder of financial education company moneystarthere.com. You can order a copy of your bank account report from ChexSystems here; if you forgot about an account that became overdrawn, or if someone opened an account in your name, you'll be able to find out about it and possibly clear up any problems before they prevent you from accessing financial services in the future. "You should get this once a year," Winston advises.
2. Not Updating Beneficiaries on Accounts and Insurance Policies
When you were young and single, you probably didn't give much thought to the beneficiary line when you opened a bank account, 401(k) or life insurance policy. Once you have a family, though, the responsible thing to do is to go back and accurately update that information.
If you pass away suddenly, even if you have a will, your assets could go to whoever you elected as a beneficiary (old flame? parent?) instead of to your spouse and kids. If you left the beneficiary line blank, that's even worse, because the state swoops in and claims the assets from your estate initally, and it takes valuable time and maybe even the services of a probate lawyer to sort it all out.
If something should happen to you, you want to make sure your loved ones have access to the resources they'll need. Experts say you should revisit all of your beneficiary information when you have a major change of life, such as marriage, divorce or the birth of a child.
3. Ignoring Ways to Lower Your Property Insurance
You probably already know that a defensive driving class can, in some cases, yield a lower premium on your car insurance, but there are other ways you can hunt for some insurance savings, says Jim Whittle, assistant general counsel and chief claims counsel for the American Insurance Association.
Some insurance carriers will cut you a break on your homeowner's insurance if you have burglar alarms, a sprinkler system or certain kinds of fire- and smoke-detection equipment. If you live in an area prone to high winds, you might be eligible for a break if you have storm shutters or reinforced storm doors. All these offerings vary greatly depending on your insurance company, your particular policy and your agent, but it never hurts to ask.
A surefire way to lower your premiums is to increase your deductible, says Whittle, but he adds this caveat: Make sure you have the amount of that deductible in an emergency fund, where you can easily access it if disaster strikes and you need to file a claim.
When it comes to your car insurance, check to see if you're paying for collision coverage. If you drive an old clunker, it might not be worth the expense. It's also not a bad idea to periodically check your policies and make sure you're not paying for anything you don't own anymore, like a personal watercraft or snowmobile you sold at the end of last season.
4. Ignoring Your 401(k) or IRA
Unfortunately, a retirement account isn't like a slow cooker; you can't just set it and forget about it, experts say. Research shows that the more options people have, the more confused they get and the less likely they are to enroll, according to Kelly Campbell, president of Campbell Wealth Management in Alexandria, Va., who refers to 401(k)s as "the forgotten asset."
That's unfortunate, Campbell says, because a portfolio with greater diversification stands a better chance of delivering better returns over the long run. As the decades go by, you want to shift a greater percentage of your retirement funds from stocks -- which earn more but are more subject to loss in a downturn -- to safer asset classes like bonds.
Until the recent market crash, many Americans relied on an investment product called a target-date fund, which held out the attractive option of automatic re-allocations. The trouble was, many were still overly risky and led people on the vege of retirement to lose a large percentage of their nest egg when the stock market took a dive.
These days, Campbell says, things have changed. "A year or two ago, [target-date funds] were more aggressive than they needed to be. They're positioned a lot better [now]," he says.
Even with the assistance target-date funds provide, though, Campbell says you should check your allocations every year to every two years and adjust accordingly. Here's why: If you invest even a small amount in a certain sector -- say, technology, which a lot of people did in the 90s -- and that part of the market takes off, you'll wind up with a proportionately larger share (since money you earn from that sector gets plowed back into it).
This multiplier process is a good idea in theory, but if the result is that you end up with a porportionately large chunk of your 401(k) invested into a single field, that leaves you vulnerable. Remember the dot-com crash? If you check your portfolio and find that your holdings in a particular sector have mushroomed, it's time to shuffle around your money to protect it from future fluctuations.
5. Not Teaching Your Kids About Money
There's been a boom in products lately, mostly prepaid debit cards, aimed at kids and teens. The pitch sounds seductive: The cards teach kids about money -- mainly, that if they don't follow the rules and read the fine print, it'll cost them -- in a way that doesn't louse up their credit or leave them thousands of dollars in the hole.
There's just one problem, experts say: These products are charging a hefty premium to do what parents themselves should be doing from the time kids are old enough to get an allowance.
Just what should you be doing to help your kids by financially savvy? Get them a checking or savings account that doesn't charge fees, maybe at a local bank or credit union, and make sure they understand what those statements mean when they come in the mail.
Another idea: When you use your credit card at a store or when the family's out to dinner, use that as a teachable moment, says Barry Paperno, consumer operations manager at MyFICO.com. "Parents need to talk to kids about credit, and there are so many opportunities to do so," he says. "I think kids can get the idea if you don't talk about it, that it's all magical."
Conversely, credit is one of the few areas in life where a young person can really get themselves into trouble at a very young age. Maybe they can talk their way out of breaking a curfew, or maybe they can get a teacher to offer an extension on an overdue report, but credit card companies aren't nearly as flexible.
"Even though the CARD Act limited the exposure of young people to credit offers," warns Paperno, "it's still entirely possible for young people to get themselves in over their head with credit debt." Don't wait until your kids are in trouble with money to start helping them learn their money lessons. Start early, and you'll help them avoid any problems in the future.