smart spending

5 money mistakes even smart people make

When it comes to finances, you figure you're pretty sharp. You know how to comparison shop and you contribute regularly to your 401(k) plan.

But there are common mistakes that even money-savvy people can make. If you've ever let your spouse control the finances, put off examining your credit report or bought peanut butter because you had a coupon and your family won't eat it, read on to find out how to banish cash conundrums from your life for good.

Money Mistake No. 1: Minding the pennies and letting the dollars go.

Have you ever driven across town because you wanted to cash in a 50-cent coupon? Do you spend a lot of time searching out bargains and clipping coupons? "It's sweating the small stuff," says Ginita Wall, director of the Women's Institute for Financial Education and an advisory board member for the GE Center for Financial Learning. "You're concentrating so much on clipping coupons and getting bargains, you're forgetting what your overall goals are. Then you'll take the money you saved and just spend it on something else."

Also, being penny-wise can sometimes cost you more money than you save. For example, you may spend more in gas than you save from the coupon if you have to drive across town to redeem it.

Smart Cents Solution: Think of your goal. It's fine to save cents by clipping coupons and shopping around for bargains, but be sure to keep your bigger goal in mind. Why are you saving the money? Is it for your kid's college education, your vacation fund, a new car? Then take the money you save and put it where it will do the best. For example, many grocery stores now have banks inside. If you save $6 with coupons, walk over to the bank right then and deposit that $6 into your savings account.

Money Mistake No. 2: Being confused by credit reports.

Whenever you seek credit, whether it's a new store card, a car loan or a mortgage, the lender checks your credit report to determine your creditworthiness.

"Credit reports are the most important decision-making tool for creditors," says Catherine Williams, vice president of financial literacy for Money Management International. Even potential employers and landlords can request your report to find out if you'll be a responsible employee or tenant. That's why mistakes on your credit report, whether they're caused by the credit agency or are the result of identity theft or fraud, can make your life miserable.

Smart Cents Solution: Check your report. "Everybody owes it to themselves to get a copy of their credit report, and you should know that the 2003 FACTA [Fair and Accurate Credit Transaction Act] has a provision to allow consumers one free copy every year from each of the three major credit bureaus -- Equifax, Experian and TransUnion," says Williams. The credit bureaus rolled out the act in phases with all consumers eligible on Sept. 1, 2005.

You should request a copy of your credit report every year and before making any major purchase. The three major credit reporting agencies are TransUnion (800-888-4213), Equifax (800-685-1111) and Experian (888-397-3742).

Each agency differs slightly in the information it carries, so it's a good idea to check all three reports. You may be able to get your report for free if you're unemployed, if you've been denied credit in the last 60 days or if you live in a state that requires the credit agencies to supply you with one free report every year. The cost varies state by state, with $9 the most you will pay. Even if you can't get a free report, it's worth every penny. The reports come with supporting information on how to read the data and how to dispute mistakes.

Money Mistake No. 3: Letting budgeting get you down.

Feeling guilty that you don't have a budget? You're not alone. Many people find budgeting such a drag that they just don't do it, says Wall.

Smart Cents Solution: Do "spot budgeting." Don't feel that you have to budget down to the last penny. If budgeting is a burden, you can do 'spot budgeting' instead, says Wall. "Pick three or four categories where you think you can trim expenses -- such as clothes and entertainment -- and cut down on those. You don't need to worry about every expense."

Money Mistake No. 4: Letting your money leak away.

Money leaks are those little ways you spend money, usually automatically, without even thinking about it, and often without enjoying it. The daily candy bar at work, the mid-morning cappuccino, the $20 bill you hand your kid whenever she asks for money. "That money might be better used for something you would enjoy, such as saving for a cruise," says Wall.

Smart Cents Solution: Write it down. Keep a little piece of paper and a pencil in your wallet, suggests Wall. Every time you spend money, jot down what you spent it on and how much it cost. "In three weeks, you'll be able to see where the money is going -- like, gee, the kids are tapping me for $20 every time I turn around ... so your kids may be your money leak," says Wall. "Time to corral in the kids -- no more 'Bank of Mom and Dad."'

Money Mistake No. 5: Being out of touch.

Letting your partner have total control of the family finances can spell bad news. If you don't know how much money you have, where key financial documents are stored or how to pay bills or taxes, you could be in for a rude surprise should you ever need to handle the finances on your own.

Smart Cents Solution: Hold money meetings. Both partners should know what's going on financially, even if they divvy up the financial duties, says Wall. Even if your spouse is in charge of taxes and investments, for instance, you need to have a handle on those areas, and you should keep your spouse in the loop on your bill paying and budgeting duties.

That's why Wall suggests holding monthly "money meetings" where you and your spouse fill each other in on how much you're earning, what your goals are, where your money's going, how much you're saving and any problems that may be rearing their heads.

"It doesn't mean to sit down and criticize what the other has done," she says. "The treasurer is reporting to the board of directors about where the family stands."

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