Is managing your money wisely one of your strong points?
“Everyone makes money mistakes, and some might be unavoidable in times of financial distress,” Tobie Stanger, Consumer Reports senior editor, said in a statement. “But missteps or miscalculations can cost you a lot over the long term or inadvertently hurt your family when you’re gone.”
Consumer Reports conducted a survey about Americans’ money habits and found several common mistakes and blunders that could cause significant financial, and sometimes emotional, pain. The mistakes include:
- Not updating wills and beneficiaries. Eighty-six percent of Americans hadn’t updated their wills or other estate-planning documents within the previous five years. But 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 to ensure your investment company, life insurer, and employer still have the proper information.
- Not sharing information with family. In only 30 percent of households did both spouses know major details about the family’s finances and where to find account information. Any easy solution is to designate a safe, file cabinet, or safe-deposit box to hold all important documents and account-access information.
- Messing up on 401(k)s. About two-fifths of respondents set aside 6 percent or less of pretax income in defined-contribution retirement accounts, most likely missing out on free employer matches. Ninety-one percent never reviewed fund expenses within their plans, though those expenses play a major role in investors’ returns. Fortunately, it’s easier than in the past to compare funds’ expenses. As of last year, 401(k) plans are required to send statements to investors outlining marketing and fund management fees.
- Underinsuring. Only 36 percent of homeowners had purchased extended coverage on their homeowners insurance that covered the full replacement value of personal property. Only 20 percent of survey respondents had umbrella coverage to protect them from liability lawsuits.
- Not planning for emergencies. More than 70 percent said they didn’t have an emergency fund that could cover three to six months of living expenses; 77 percent had not stored important financial information and contacts in a secure place.
- Not checking credit reports. Four out of five respondents don’t review their three credit reports at least once a year, though they’re free and indispensable.
- Mismanaging debt. Almost one-fifth of those surveyed had debt on credit cards of at least $10,000. Of the almost one-quarter of respondents who were in debt for education loans, 47 percent had taken more costly private loans.
If you have one of these problems, you’re not alone. In a recent online survey of Consumer Reports Money Adviser subscribers, 62 percent reported having made a big financial mistake at some point in their lives. Of those, 63 percent said the error cost them $10,000 or more.
For details on what you can do about these financial problems, see “Seven Money Stumbles to Avoid: We’ll Show You How to Steer Clear of the Mistakes or Change Course” in the February issue of Consumer Reports or read the article online at ConsumerReports.org.