Everyone makes money mistakes. But missteps or miscalculations can cost you a lot over the long term and could inadvertently hurt your family when you’re gone.Consumer Reports offers seven ways to correct your missteps or at least mitigate the damage they can cause.
1. Not updating your beneficiaries. In Consumer Reports’ recent nationally representative survey about Americans’ money habits, 86 percent of respondents said they hadn’t created their will and other estate-planning documents or updated them within the past five years. Even if nothing has changed in your life, every year you should check your beneficiary designations in your will, insurance policies, investment accounts and retirement plans such as 401(k)s.
2. Withholding information from family. The survey showed that in only 40 percent of households did both spouses know where to find details of their financial accounts, required passwords and keys to safe-deposit boxes. An easy solution is to designate a safe, file cabinet or safe-deposit box to hold all important documents and account-access information.
Communication between generations can also reduce hassles and misunderstandings. Yet just 37 percent of respondents with adult children said they’d told their kids where to find important documents, accounts and passwords. Adult children stand a better chance of gaining their parents’ trust and helping them make plans if they get their own financial houses in order first.
3. Botching your 401(k). In interviews with Consumer Reports subscribers who’ve been successful savers and investors, a common refrain was to start saving early in life, invest consistently and put the maximum allowed into a retirement plan. But in the survey, two-fifths of respondents with 401(k) and similar retirement plans said they were investing 6 percent or less of their income, the typical ceiling for getting a full employer match.
Notably, a large percentage of survey respondents mentioned costly investment errors, such as buying or selling at the wrong time. Investing at regular intervals and holding over the long term is the most surefire way to avoid those mistakes and build wealth in a relatively risk-free way.
4. Underinsuring your home and your life. Only 36 percent of the homeowners surveyed said they’d purchased replacement-cost coverage, a more expensive homeowners insurance that provides replacement of your home with like-kind and quality materials. And only 20 percent have umbrella coverage against liability claims.
Two other coverages that should not be overlooked are life and disability insurance. Term life insurance is more economical than other types. Use an online broker such as Accuquote, SelectQuote, Find My Insurance or LifeInsure.com to compare premium quotes.
5. Not preparing for emergencies. Most Americans don’t save even half a year’s worth of living expenses. Saving a bit at a time — say, $20 a week — can help build your cash buffer. That money should go into an accessible bank or credit-union savings account.
6. Ignoring your credit report. Consumers can obtain a credit report from each of the three major credit bureaus — Equifax, Experian and TransUnion — free through the industry’s official website, at annualcreditreport.com. To most efficiently monitor your credit, Consumer Reports recommends staggering your report requests to one every four months.
7. Mismanaging debt. Credit cards generate among the most expensive type of consumer debt; the average interest rate is about 14.3 percent, according to LowCards.com, a credit card comparison website. In spite of those lofty costs, almost half of the survey respondents with credit cards said they carry a balance on their cards.
To begin to free yourself from that balance, consider consolidating your debt with a home-equity line of credit; rates on HELOCs average between 4 and 5 percent, according to Bankrate.com. Focus on retiring your debt by paying more than the minimum due each month.