Top Money Mistakes to Avoid in 2016

January 12, 2016

A new year is here and that means it’s time to get your financial future in order.  Here are the top money mistakes to avoid in 2016.

Number 1Don’t fail to have a plan.

“If you don’t have a goal, you’re gonna end up somewhere.  It’s not maybe where you want to be,” certified financial planner Chris Redhead says.

Redhead, who is an Executive Vice President at Sequoia Financial Group, says the first thing you should do is set a budget and live within your means.

One of the most important things you can do to get control of your budget is tracking your expenses; even the little things, which add up over time.  To put that in perspective, if you stop for a $4 vanilla latte every afternoon, you will have spent more than $1,000 by year’s end.

Number 2Don’t live on borrowed money.

That means start paying off your bad debt, i.e. credit cards.

“You’re paying interest on credit cards, double interest rates. You’re paying 10 and 12 percent, in some cases, and we’ll never be able to catch up on that,” Redhead says.

Number 3:  Don’t buy too much house

2016 should be a good year to buy a house.  While interest rates are on rise, they’re still historically low.

But don’t make the mistake of buying too much house.

“If you buy too much house, how are you going to adequately save what you need for retirement?  It’s impossible,” Redhead said.

Number 4:  Don’t give up free money

When you’re saving for retirement, don’t fail to participate in an employer’s 401k match program.  It’s a good idea to try and put away the maximum amount the company will match.  That is free money!

“If the company matches you dollar for dollar for 3% and you put away 3%, you’re saving 6%,” Redhead said.  “They’re guaranteeing you a 100% return on your money, and if you’re not taking advantage of it, you’re leaving money on the table.”

Number 5Don’t miss out on ‘tax saving’ vehicles

Investing in a Roth IRA is one of the best vehicles for you to save for retirement, because it creates tax free money.

“This is a vehicle you can put money in and it grows, tax deferred, as long as you leave it in for a certain period of time,” Redhead explained.

People under age 50 can contribute a maximum of $5500 to a Roth IRA and people over age 50 can contribute up to $6500 a year.  Your money will grow tax free as long as you follow the rules.

“You leave it in until age 59 and a half or 5 years and all the gains will be tax free,” Redhead said.

Number 6Don’t borrow money from your retirement plan.

That’s a big ‘no no’.

The key to growing money is compound interest, so leave that retirement account alone, so you don’t forfeit that benefit.

Number 7:  Don’t fail to have an emergency fund

To protect your family from an unseen situation, make sure to keep an emergency fund that would cover three to six months’ worth of expenses.

“The average person is often 2-3 months away from bankruptcy,” Redhead said, “so I always think you should have some emergency reserves, so you don’t have to tap into your 401K or rack up a huge amount of debt.”

Angie is an investigator for the James Hoyer Law Firm.  You can catch her Consumer WISE reports every Tuesday on Bay News 9 in Tampa and Central Florida News 13 in Orlando.