Personal money management is a balancing act -- part art and part science -- and any negative move can turn the whole scenario out of whack.
But too many Americans make the kinds of mistakes that throw their financial lives out of balance, and some do so willingly.
To better illustrate that point, the personal finance web site MyBankTracker.com recently ranked the worst money mistakes Americans make on a regular basis. Here are those mistakes, in a nutshell:
1. Lending money to a family or friend
2. Missing a credit card payment
3. Skipping out on retirement contributions
4. Taking on too much student loan debt
5. Underestimating what you owe in taxes
6. Bouncing a check
7. Spending more on a house than you can afford
8. Getting a payday or car title loan
Why is lending cash to people you know ranked #1? Human emotion comes into play.
"Consumers often lend money to family and friends, because it is so difficult to say, 'No' for the worry that it would hurt the relationship," notes Alex Matjanec, chief executive officer of MyBankTracker. "The best policy when lending money to family and friends is to lend without any expectation of being repaid."
The lack of any formalities tied to a family or friend loan also capsizes such deals. "Most friend or relative lending is a boneheaded mistake, because there's no contract in place to document the amount, duration, and interest rate, and there's no third party that enforces repayments," says Sebastian Fung, founder of WeFinance.com, a website that helps friends and relatives lend and borrow money from each other. "Additionally, repayments aren't done automatically and people forget."
Simple busy life schedules often cause Americans to make other financial mistakes -- like missing a credit card payment.
"Life can get hectic sometimes, so it's easy to miss a credit card payment when you become too preoccupied with other issues," Matjanec adds. "A missed credit card payment can have a lasting effect on your finances if it's recorded on your personal credit reports, which negatively affects your credit scores. With a lower credit score, you'll get higher interest rates on loans, including mortgages and auto loans."
To avoid a missed credit card payment, set up automated payments so that you don't have to remember to make a payment, Matjanec says.
Besides the BankTracker list, there are other bone-headed mistakes financial consumers make with their money, again, with the best intentions. Co-signing a loan, for example, is a big mistake. "Whenever you co-sign a loan, just consider that debt is yours," says Robert R. Johnson, president and CEO of The American College of Financial Services in Bryn Mawr, Pa. "Many a friendship, romantic relationship, family relationship and business relationship have been ruined by co-signing a loan."
Another agreed upon money mishap -- not taking advantage of an employer match in a retirement account. "If you don't make the minimum retirement account contribution to earn your employer match, you are leaving money on the table every pay period," Johnson adds. "For example, if you make a 3% contribution and your employer matches it, you essentially get an immediate 100% return on your investment," says Johnson. "You can't get that kind of guaranteed return on your money anywhere."
Americans who don't have an emergency fund are committing another major financial faux pas, whether they know it or not. "With so many people living paycheck-to-paycheck it is a dangerous financial decision to function without at least six or eight months of expenses in a savings account," says Ash Exantus, financial empowerment coach at New York City BankMobile, a no fee online bank. "One may argue that because they are living paycheck-to-paycheck, so they can't afford to save money. But on the contrary this is exactly why they must save money."
The trick to launching a successful emergency fund is to pay yourself first before paying any other bills, says Exantus. "Making it automatic will assist in allowing the goal of six to eight months of expenses a reality," Exantus says.
Turning money mistakes into money masterpieces isn't easy. But at least start with knowing what those mistakes are, so you can correct them straightaway.