From planning to investing, the top 10 financial pitfalls

All of us make financial mistakes, but there are some doozies that can really do lasting damage.

We commit those mistakes for several reasons: ignorance, fear, ego, a desire for immediate gratification.

Notice that all those involve emotions.

"We make our decisions on an emotional basis — all of us do," said Rick Salmeron, a certified financial planner and head of the Salmeron Financial Network in Dallas.

It can be dangerous.

So in the spirit of helping you avoid committing those financial mistakes, here are the top 10 personal finance/financial planning mistakes many of us make.

If you've committed some of them, don't lose hope.

"It's never too late to get on a pattern of debt reduction or debt elimination," Salmeron said. "It's never too late to start saving or save more when you know you should have."

• Not having a goal and a plan for how to achieve it.

Absent winning the lottery or receiving a fat inheritance, financial success doesn't just happen. You have to know what you want to achieve and then decide how to get there.

Without a plan or goal, your financial behavior will lack focus and you could spend your money — a dollar here, a dollar there — not knowing where it's going or how the expenditures are affecting your financial security.

"Your financial future is in your hands," said Lynn Lawrance, a certified financial planner at Financial Network Investment in Dallas. "You can either make it happen deliberately, or it will happen to you."

An example: "Many people only get serious about retirement planning when their retirement is on the horizon," she said. "As a result, they may lose critical flexibility and opportunities."

• Not being willing to change your behavior so you can get to where you want to be.

This includes failing to admit that you're living beyond your means.

Keep track of all your expenditures for a couple of months, and you'll be shocked at where your money's going. That latte every morning can add up to big bucks by the end of the year.

Many consumers don't have a budget, or they budget ineffectively.

"You grow into your paycheck," said Tim Dierkes, a certified financial planner at Texans Credit Union. "The more you make, the more you spend."

• Not paying off your credit-card debt each month.

Credit cards can be a great convenience, and they're necessary today for things such as reserving a hotel room or rental car.

But misuse them, and they can jeopardize your financial future.

"Having balances on your credit cards is like trying to do the backstroke in quicksand," Salmeron said. "Pretty soon, you're drowning."

• Making only the minimum payment on credit-card debt.

If you carry a balance and you're making only the minimum payment each month, you're on a treadmill to nowhere.

Minimum payments are designed to stretch out the term of your loan, which enriches the credit-card issuer because you're paying interest that whole period.

And it will take you forever to pay off that bill.

"A $3,000 balance at 18 percent interest will take more than 22 years to repay if you only pay the minimum," said Greg McBride, senior financial analyst at Bankrate.com. "If you pay just $75, but do it every month rather than just the first month, you can repay that balance in approximately five years."

That's assuming you don't stack more debt on that card.

• Failing to save at all or to save enough.

"Just because you have some money doesn't mean you have to spend it," Lawrance said. "If you're out of money before the month ends, what will you do when your paycheck stops permanently?"

What you need is an emergency fund for unexpected expenses. It also will reduce the need to use high-interest debt, such as credit cards, as a last resort.

Most financial planners recommend that an emergency fund have enough money to cover three months of living expenses.

"If there is one thing that will help you sleep better at night, it is having some money in the bank to cover unplanned expenses," McBride said. "Pay yourself first via direct deposit into a high-yield money-market or savings account."

• Waiting too long to save for long-term financial goals.

"Delay in saving for major goals, such as college or retirement, increases the amount you'll have to ante up later," Lawrance said. "Time is either your friend or your enemy."

You don't have to put away a lot all at once if you start early, but you do have to start, and you need to contribute consistently.

One of the best methods is to put your savings on automatic pilot, having a certain amount of money automatically taken out of your paycheck each period and put into another account.

• Failing to take advantage of benefits provided by your employer, such as your 401(k) or life insurance.

One of the best moves you can make is to start an automatic savings program through your employer's 401(k). You won't miss the money, and you'll have a head start in saving for retirement.

It also will save on your tax bill because the money is taken out before taxes.

If your employer matches your 401(k) contributions and you're not participating, you're walking away from free money on the table.

"Even if the employer doesn't match, Uncle Sam still offers a powerful tax incentive," Salmeron said. "Any contributions in your 401(k) — as well as any investment earnings — aren't taxed until money is withdrawn during retirement."

• Not having any or enough life insurance.

The purpose of life insurance is to provide for your family after you die.

"The probability of getting a flat tire while driving is a fraction of 1 percent," Salmeron said. "The probability of dying is 100 percent. Would you drive without a spare tire in the trunk? Then why wouldn't you carry enough life insurance?"

If you have a stay-at-home spouse, don't overlook the value that he or she is providing when you evaluate how much life insurance to purchase. Think of how much you would be paying for child care if your spouse weren't home to care of the kids.

Michael Cupps knew he should buy a life-insurance policy on his wife, Anna, a stay-at-home mom to their 10-year-old son.

"It's something I thought of," he said. "I just never acted."

But Salmeron convinced him that he shouldn't put this off.

"My concern was replacing my income if something were to happen to me," Cupps said. "I guess you just don't sit down and think about what happens if something were to happen to her."

But he knows that if something were to happen to his wife, he would have to rearrange his schedule and get child care.

"The wife may not be bringing home a salary, but she represents a very strong economic benefit, in addition to others, when it comes to the family finances," Salmeron said.

• Overinvesting in company stock.

"I gag when I see people load up on their company's stock," Salmeron said. "Just as the medical professional encourages a well-balanced diet, I encourage a well-balanced portfolio."

Consider the case of Enron, where employees had more than 60 percent of their retirement money invested in company stock. Workers lost about $1 billion in savings when Enron imploded in 2001 and its stock fell from $90 a share to nothing.

Financial planners say you shouldn't have more than 20 percent of your retirement money tied up in company stock.

"Diversify your investments, not your advisers," Lawrance said.

• Letting emotion drive your investment decisions.

You may put too much money in your company's stock because you fear investing in a company you're not as familiar with.

Likewise, when stock prices fall sharply and your fear kicks in, you tend to sell at a loss and wait to get back in when the market rises back to its original level.

"I can think of no quicker way to lose money than letting your emotions determine how you invest," Salmeron said. "As an investor, you should check your excessive optimism at the door. You might believe you're the next guy to spot the next Google or Microsoft, but the odds are you're not."

Instead, said McBride, "build a well-rounded portfolio that will help you weather the inevitable ups and downs while working toward your financial goals."