Everybody makes mistakes — even people who write about money for a living. Here are a few examples from some of the nation's top bloggers, along with 10 of my own.
On Wednesday, we covered 30 Tips to Spend Less and Save More, asking some top financial bloggers for their single best idea. Today we're looking at a different side of money. At the recent Financial Bloggers Conference, I asked some of the same and a couple of different financial writers to share their worst financial mistakes.
Here are 10 bad approaches to the family finances.
1. Buying a new car.
You might as well be flinging $100 bills out the window as you cruise off the lot. New cars see an instant drop in value of up to 25 percent. Buying a gently used car that has 98 percent of the reliability at 75 percent of the cost should be a no-brainer. For that matter, you can get a reliable car for $5,000.
This is the one mistake on this list that I can say I've never made. I'm 56 years old and have yet to buy a new car.
2. Borrowing to buy things that lose value.
A car is only one example of things people finance. Furniture, appliances, technology — the value of all these things is headed in one direction, and that's down. Paying interest means getting hit twice, first by the value loss and then by finance charges.
There are purchases where borrowing is justified: a home, a business, or an education can be among them, since they at least have a chance of ultimately increasing your net worth. For pretty much everything else, the fewer borrowed bucks, the better.
It's hard to imagine that anyone in America hasn't made this mistake at one time or another. I certainly have.
3. Earning squat while paying plenty.
If there's anything personal finance professionals agree on, it's making sure you have an emergency fund. Nothing wrong with that. But if you're paying 25 percent on a credit card and earning less than 1 percent on your savings account, you're more likely to create an emergency than solve one.
If you're about to get laid off or might otherwise find cash hard to come by, setting aside as much as possible while you can is obviously a good idea. But if your job is secure and your life stable, use your savings to pay down high-interest debt.
I'm potentially making a variation of this mistake right now by keeping money in the bank while maintaining a mortgage. My logic? I think I can earn more by investing than I'm paying in mortgage interest. So far so good, but it's easier said than done.
4. Ignoring your credit score.
I'm happy to report that I don't make this mistake. I check my credit report at least annually.
You've heard it all before: A low credit score means higher borrowing costs, higher insurance costs, and more difficulty with rent and work. But that's the tip of the iceberg. There's also opportunity cost.
Say we both borrow $200,000 on a 30-year mortgage. Because my credit score is lower, and my interest rate is higher, my payments are $1,200 a month. Your higher score and lower rate earns you a $1,000-a-month payment.
Suppose you invest your extra $200 every month during that 30 years and manage to average 8 percent annually. At the end of that time you'll have $300,000. That's a pretty nice payoff simply for having a higher credit score.
While you can't get a free copy of your credit score, you can get a free copy of your credit history from AnnualCreditReport.com. If you don't like what you see, take steps to improve it.
5. Wasting a windfall.
Here's a mistake I've certainly made before. Who hasn't?
Getting a big lump sum of money is exciting, and all too easy to blow. Many people get this opportunity every year with tax refunds, which averaged more than $3,000 for 2011. Don't waste it at the mall. Leverage it by paying down debt, increasing your productivity, or adding to your savings.
6. Overpaying your taxes.
Speaking of taxes, from putting money in a retirement fund to taking investment losses, there are ways to legally reduce them. Many times we don't take advantage of them because we fail to take the time before year end to do a little planning. Big mistake, and one I've certainly made more than once.
7. Buying name brands.
In some cases, certain brands are noticeably better and worth the money. But when they're not, you're wasting money. In fact, with some things, like aspirin, for example, the generic isn't similar, it's identical. Go generic as often as possible. If you don't like it, switch back the next time you shop.
Have I made this mistake? Absolutely.
8. Getting scammed.
Sometimes an offer is too good to refuse — even when we get the nagging sense that we should. Scams can be painfully obvious, like those "Dear Sir" spam emails from Nigeria. Or they can be subtle and sophisticated, like fake charities, contractor rip-offs, product reviews, and more. At least avoid the Federal Trade Commission's list of top 10 consumer problems and learn to identify scams.
I've been investigating scams for more than 20 years, and I'm still not immune. Is it possible to live in America and never fall prey?
9. Missing new technologies.
We spend a lot of money on our gadgets, but not much effort learning how to use them to save on both time and money. Whether it's with black boxes that replace cable at 10 percent of the cost, smartphone apps that track spending and find savings, or websites that offer your favorite music for free, there's no reason technology can't make life more convenient and cheaper.
I'm learning new ways to tackle old problems every day.
10. Settling for more.
The asking price is rarely what you have to pay when it comes to many goods and especially services. If you aren't inquiring about discounts, researching coupons, and haggling for the best prices, you won't get them. Those who do might enjoy free hotel upgrades, lower interest rates, and even cheaper doctor visits.
While I'm probably better than most at finding deals, there's always room for improvement.