Simple Advice About Money

By Jim Gallagher St. Louis Post-Dispatch.

We all make mistakes. But we can dodge them if we see them coming. In this column of life advice, let's hear from people who are smart with money about how to avoid the financial goofs that can leave you broke.

Don't rush into marriage. "The biggest financial mistake people make is getting divorced," says Suzanne Gellman, consumer economics specialist at the University of Missouri. Dividing debts, selling homes, arguing over possessions and dealing with child support leaves parties drained financially and emotionally. Divorce is a major factor in bankruptcy. Love clouds the brain. The best way to avoid divorce is to be very careful about who you marry, and talk about money before you tie the knot.

Get an emergency fund. You need enough savings to carry you through a spell of unemployment. When drawing up a budget, first decide how much you'll save from each paycheck, then figure how you'll live on what remains. Make savings automatic -- set up an automatic deduction from your checking to your savings account.

Use credit cards sparingly. They make it too easy to lose track of spending. Favor debit cards for everyday convenience, and shun expensive overdraft coverage.

Be sane about student debt. A $50,000 student debt load is manageable if you're a petroleum engineer (average pay $107,000) but it's a big burden to a teacher (average pay $41,000, according to Payscale.com). Students headed for mid-paying careers should choose cheaper schools.

Get the right insurance. Gellman finds that people often overinsure their lives, underinsure their cars and neglect disability coverage. Less than 10 percent of people die before retirement, but about a third become disabled, which makes a disability policy a good idea. Some employers offer it as a benefit. The Affordable Care Act has made basic health insurance affordable for most people, and that can save you from bankruptcy. Ditto for good auto liability coverage if you hurt someone in an accident. If other people depend on your income, you need life insurance. Term life is cheap -- you can shop on the Internet -- and usually the best choice.

Don't neglect the 401(k) if you ever want to retire. If your company offers a 401(k), contribute at least enough to get the full company match. If your employer offers no retirement plan, open an Individual Retirement Account. Your contribution to a regular IRA will likely be tax deductible, but not for a Roth IRA.

"529" plans are the best way to save for college. The money grows tax-free if used for higher education. You can choose any state's plan and get a nice deduction from Missouri state income taxes. Illinois gives a deduction for its own "Bright Start" plan.

Don't be house poor. A house isn't an investment. It's a place to live, notes Gellman. Don't mortgage yourself to the point that a job loss will throw you quickly into default. Save for a nice down payment to avoid expensive private mortgage insurance.

Beware of concentrated positions -- too much money invested in a single stock, or a single industry, says Chris Lissner, president of Acropolis Investment Management in Chesterfield. Diversifying investments lowers risk.

Don't borrow money to invest in stocks. Borrowing heightens the risk inherent in the market. "You want to sleep well," Lissner says. It's a rare occasion when borrowing to invest makes sense.

Women, control your men. We know-it-all guys need a good woman to talk us back to Earth before we go off on a financial flyer. Men tend to be overconfident, and that can be their undoing, says Matt Hall, president of Hill Investment Group in Clayton. "It's the belief that we have the ability to see something that other people can't know, and that's going to equate to investment success," he says. "You quickly will be humbled." The markets are full of smart pros, and they have trouble beating the dumb market indexes. That's one reason why index mutual funds beat actively managed funds in most years.

Shut off CNBC. "People watch too much financial media," Lissner says. They take action based on the latest breathless prediction, when those predictions are often wrong, he says.

Choose a financial adviser carefully. Don't just grab the guy Grandpa uses. Make sure you understand how they're charging for advice, Hall says. You want someone who will recommend what's good for you, not what pays the highest commissions for the adviser. Interview a few and make sure their investment philosophy is in line with yours. Check for stains on their record at brokercheck.finra.org.

You need a will, and it must be up-to-date. Die without one and the law decides how your estate is divided. You might also cause a big argument among your heirs over who gets what.

Do a cold analysis before deciding to retire. Financial planner Michele Clark of Chesterfield says the two biggest mistakes people make are failing to factor in inflation and underestimating medical costs. She figures that a married couple should count on spending $11,000 a year for health costs beyond what Medicare will pay. Rising prices are a hidden tax on savings. Social Security payments rise with inflation, but many pensions won't.

Don't claim Social Security early, unless you have to. Claim it at age 62 and your monthly check will be about 25 percent smaller than if you wait until 66. Delay it beyond 66 and your check will grow 8 percent for every year you wait until age 70. At age 66, a man can expect to live another 17 years and a woman 19 years, according to Social Security's estimates. That's a long time to be underpaid.

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