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3. Use credit as an emergency fund
For a long time, credit cards have served as the de
facto emergency fund for many.
With credit issuers now lowering credit limits and increasing interest rates in response to the Great Credit Crunch of '08, a stash of real money seems much more appealing these days. An emergency fund that's not available in an emergency won't do anyone much good.
Carbonaro recommends her clients keep
at minimum three to six months of savings as an emergency
fund. For some clients she recommends savings beyond
that amount.
"Because if they get laid off in this
climate, I want them to have a lot of cash available,"
she says. "I used to suggest that people get a line
of credit on their house, and that would be their
backup emergency line."
"Of course, you know what the problem
is with that -- they keep freezing those lines right
now, so that second emergency fund is almost gone
or even nonexistent at this point. Not for everybody
and not in every case, but the point is that the option
is mostly gone," says Carbonaro.
Tool: Put away the credit cards and use the emergency savings calculator to get started with your bona fide emergency fund.
4. Try to get rich quick
Those can't-fail schemes advertised on TV and radio will get someone rich, but it won't be you. Thus they make the perfect investment vehicle for investors looking to lose their shirts.
"Some people would like to believe that
there is a system to beat the system, and there is
always a segment (of the population) that wants to
get rich quick. And the only people that do get rich
quick are the people that are peddling this garbage,"
says Eric Tyson, financial counselor and author of
"Personal Finance for Dummies 5th Edition" and "Investing
for Dummies."
"And they charge outrageous fees for what they're selling," he adds.
Tip: In Bankrate's recent poll, we discovered that only a small percentage of the population actually expects to get rich quick. Take our online poll to see what's holding you back from getting ahead.
5. Buy high, sell low
Buying a stock or mutual fund at the height of popularity and then selling at fire sale prices is a surefire way to get subpar returns -- and the antithesis of sound investing principles. But chasing returns and hopping in and out of the market based on emotional whims is a common American pursuit.
Chicago-based Morningstar tracks fund returns, but also studies actual investor returns, based on money flows in and out of funds over time. It appears that investors don't win the performance-chasing game. For example, Morningstar determined that the average investor in a large-cap domestic growth fund lost 0.3 percent a year in the 10 years through September 30th, but those funds returned 2.4 percent a year on average, according to a report in The Wall Street Journal.
"You have to be able to come up with a plan and then stick to it," says Tyson. "That doesn't mean that you're inflexible. But you shouldn't have knee-jerk reactions to recent news events, and unfortunately some people do."
Tip: Learn about simple and complex long-term investment strategies used by professional money managers.
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