10 Most Common Personal Finance Mistakes

By Jennifer Leigh Parker, CNBC.com

All of us are guilty of a few bad financial habits, and most of us share a few. When financial advisors first meet with clients, they usually find a familiar set of money-losing miscues, from checking credit reports too infrequently (or not at all), paying too much for insurance, or buying stocks for the wrong reasons.

Rarely are any of these bad habits alone enough to sink us. But taken together over time, these small leaks in our financial ship rob us of amounts we'd never stand for losing all at once.

See the slideshow: 10 Most Common Money Mistakes


We asked several financial advisors to name the most common personal finance mistakes they find, and provide solutions to each. The good news is that some of the most frequently made missteps are also the most preventable.
Read ahead to see the most common mistakes - and how to stop making them!


Overpaying for Home Insurance Overpaying for Home Insurance
Odds are the premium on your homeowner's insurance is too high. In a recent survey by insurance provider ACE Private Risk Services, 78 percent of independent insurance agents said homeowners are overpaying for their house insurance.

What to do: Hike your deductible. By raising the amount you pay in the event of a mishap, you let the insurer off the hook for part of the cost and, in turn, lower your premium. "If a home is insured for $1 million and the owner who pays a $500 deductible raises that to $2,500, they can save $900 a year in premium savings," said David Spencer, vice president of ACE private risk services.


Buying Life or Health Insurance Putting Off Buying Life or Health Insurance
You're healthy, so you don't think you need to insure yourself against sickness, injury, or death. The older you get, however, the more expensive insurance gets.

What to do: Start paying now and you'll pay less. "The sooner you buy, the better off you are," says Suzanna de Baca, vice president of wealth strategies at Ameriprise Financial. If you get insured at age 25, instead of waiting until you're feeling mortal at 55, de Baca says, you can save up to $10,000 across those three decades.


Passing Up Tax Breaks Passing Up Tax Breaks
Small investors often look only at the return an instrument is giving them, and overlook how taxes take a bite out of those returns. Morningstar figures that over the 74-year period ending in 2010, investors who did not manage investments in a tax-sensitive manner gave up between one and two percentage points of their annual returns to taxes.

What to do: First, take a look at which of your investments are taxable, tax deferred, or tax-free, says John Sweeney, executive vice-president of Fidelity's Planning and Advisory Services, and plan to commit some ordinary income to tax-deferred accounts, such as defined contribution plans such as 401(k)s or traditional IRAs and annuities.

When buying and selling stocks that pay dividends, or managing your mutual funds, bone up on tax rules about qualified dividends - those paid on stocks that you've held for 60 days or more within prescribed windows that qualify the dividends to be taxed as capital gains. Selling stocks even a day to soon can result in paying tax on dividends as ordinary income, costing you 10 percent or more.


Paying Retail Paying Retail
Though not an investment snafu, paying full price on purchases can be a big drain on your finances. In today's digital age, there are many tools available to help consumers make better buying decisions.

What to do: Make savvy comparisons. Websites and mobile apps like Red Laser, PriceGrabber, and NextTag find retailers with the best prices, according to Trae Bodge, senior editor for RetailMeNot.com. Next, become a coupon cutter. You can find discounts online for everything from apparel to conference registrations via coupon code websites such as Bodge's RetailMeNot.com. As for fashionistas, two words: flash sale. With sites out there like Belle & Clive, which sells designer brands at a discount, there really is no reason to pay full price.


Buying Stocks by Their Brand Buying Stocks by Their Brand
Small investors often buy stock because they have a good experience with the company. This makes perfect sense, but make sure to ask yourself what it is you like: Is it the product or the service? Or something less bankable, such as the image of the brand? Going with your gut without doing your homework can lose you money in a hurry.

What to do: Image counts, but price and valuation matter more, says Brian Gendreau, market strategist for Cetera Financial Group. "Investors who buy stocks without regard to price often find themselves with dead money for years to come." Gendreau suggests you check out the price-earnings ratio, or P/E, one of the main metrics analysts use to compare values between companies. Many financial sites (including CNBC.com) calculate the P/E ratio for you, but you can do it yourself by dividing a stock's current share price by its earnings per share. If the number is high relative to other stocks in the same sector (like retail or technology), what you're buying may be too expensive, relative to other companies.


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