13 Common Mistakes That Can Blow Your Finances

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Photo: Flickr/Kai Van Chong

You pack your lunch, and never buy items at full price. You pay your credit card on time every month, and save up for that much-needed vacation every year.If you’re doing these things, you’re likely on top of your finances.

But a new year is always a good time for a new challenge–and we have one for you: In 2013, vow to take your finances to the next level.

How? By learning from the pros.

The Certified Financial Planners (CFPs®) at LearnVest Planning Services have seen the fiscal situations of a lot of people.

They know what mistakes people are likely to make, and they know the best ways to fix them.

So we’ve turned their collective wisdom into a must-read guide for turning 2013 into your best money year yet. Read on to find out what exactly not to do—and how not to do it.

Not saving for retirement when you're employed

It's easy to come up with excuses for not saving for retirement. (See The 11 Biggest Retirement Lies You're Telling Yourself.)

But you should be saving for retirement whenever you're making money because there will be a time when you won't be making any money--but you'll still have to support yourself then.

This means that part of every dollar that you earn during your working years should go toward funding your non-working years.

If your company doesn't offer a retirement savings program, open an IRA. If your company offers a plan, but doesn't match, use these flow charts to see how best to allocate your retirement money.

Choose the chart according to your tax filing status--either single or married filing jointly.

And if you're ready to jump aboard the Retirement Express, take our Retiring in Style Bootcamp.

Not having a game plan for getting out of debt

Not doing the maths before you take out student loans

Considering grad school? Have a teenager who's heading to college?

Whether you or someone dear to you is planning to take out student loans, you should beware of one of the biggest pitfalls that CFPs® see: A lot of people take on huge student loan debt without knowing what their monthly payments will be when they graduate.

This is especially common among people attending grad school programs that promise graduates high salaries.

Be aware: Anyone who takes on a $100,000 loan, and pays 6.8% interest on it, will be paying about $1,100 a month toward that loan--for 10 years.

If you're certain that it's worth it for you, learn what you need to know about taking out student loans in our Understanding Student Loans 101 and checklist.

Not having a budget

If you want to take control of your money, you need to know where it's going and plan in advance how to spend it.

Bottom line: You need a budget that works for you.

This may sound daunting, but it's easy if you follow the 50/20/30 Rule, which is flexible enough to fit any situation.

Basically, the rule says that from your take-home pay, you should allocate:

  • 50% to Essential Expenses, which include housing, transportation, utilities and groceries
  • 20% to Financial Priorities, which are retirement, savings and debt (in that order)
  • 30% to Lifestyle Choices, which are gifts, travel, dining out, shopping and everything else

Then track your spending to make sure that you're sticking with your budget. You can do this through a myriad number of ways, including pen and paper.

But using an automated system will ensure that you don't miss any expenses, and you'll see trends in your spending.

RELATED: Budgeting 101

Living paycheck to paycheck

Not having enough in emergency savings

Not understanding the importance of your credit score and credit report

One of the toughest things about personal finance: getting your situation exactly to your liking takes time.

And that is especially true of your credit score and credit report.

These two items are essentially a record of how you've handled your finances over time--and they'll determine whether or not you'll be eligible for thousands (even hundreds of thousands) in savings when you go to make your biggest purchases, such as a car or a house.

Develop these habits now, so you're ready when that big day arrives:

  • Pay your credit cards and other debt payments on time every month
  • Use just 10% to 30% of the credit available to you
  • Check your credit score and credit report three times a year
  • Dispute any mistakes on your report

RELATED: 10 Things You're Embarrassed to Ask About Credit

Not understanding the terms of a co-signed loan

Another big thing that can affect your credit is co-signing a loan with someone who doesn't hold up their end of the bargain, dragging down your credit score.

It can take years to recover from this kind of event.

Take it from this woman--who saw her stellar credit plunge 200 points.

Not realising that a car payment can affect other goals

Not having a will if you have minor children

Your will allows you to name a guardian for your children in the event of your death.

Simple question: If you die, do you really want the state to decide what to do with your kids?

RELATED: Wills & Trusts 101

Not having life insurance if you have minor children

Again, this is a simple question: In the event of your unexpected death, how would your family cover immediate expenses, such as funeral costs, as well as long-term ones, like mortgage payments?

Buying an adequate life insurance policy can help ensure that your family is well protected.

Find out how life insurance helped this family in the wake of a disaster.

Then read our Life Insurance 101, and follow our step-by-step checklist, to determine the kind of policy that you need.

Not having long-term disability insurance

Not having a plan for your finances

If you don't have a plan in place for your finances for paying down debt, building savings or setting aside enough for retirement, you're not getting ahead.

This also means that you're not going to be able to move ahead as effectively on major life goals.

So figure out where you want to be in life a year from now--and then see how your money can help you get there.

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