Avoiding Mistakes with Your Money

EVERYONE makes financial mistakes like the man who died before he told his new bride the location of his safe deposit box, or the low income fellow who invested the family savings in tax exempt bonds instead of corporate bonds, which would have paid him much more. The most common financial mistake is a failure to define your goals. Few people know what they really want their money to do. Several years' accumulation of savings or a sudden inheritance or other windfall leaves them with money to invest and no idea of how to make it best work for them.

What is your goal? For example, are you saving for college tuition, or future security? A necessary first step to accomplish your goal is to estimate just what you want your money to do and how much you will need to do it. The next step is to figure out how much you must put away each week or month to reach your goal.

Another common mistake is failure to follow through on your financial goal. The cost of not making investment moves immediately can add up. Say that, after a check of your personal finances, you decide to shift some money from your low paying savings account into higher yielding Treasury bills. If you delay just a few months, your procrastination can cost you a bundle of money.

A third financial mistake is the failure to maintain careful records, You have to keep and keep updated lists of your investments, your bank accounts and any financial advisers you might have. Your personal financial file should list names and amounts of all your securities, money market funds, hard assets and life insurance policies. It also should give the location of your safe deposit boxes and contain your tax records and credit card information, as well as wills and deeds.

Keeping it is not only a wise precaution in case anything happens to you; it is also a constant reminder of your financial position. If you are always aware of where your money is, you can take advantage of tax changes and map out new investment strategies. Keeping such information complete and correct makes it easier for you to switch around your investments and eases the burden on your family if you become ill or injured.

Still another common financial mistake is greed. Some people are so obsessed with making tax exempt or tax deferred investments that they often miss much more lucrative, if taxable, investments. You should look for good, sound economics in an investment before you weigh the tax benefits. This is especially true now that reform has eliminated or reduced the tax advantages of many investments.

It is a mistake to heed advice from people who are not qualified to give it. Amateurs like your next door neighbor or your cousin's son in law can do more damage than good. You are better off soliciting and then carefully considering professional advice from brokers, bankers, attorneys, accountants or financial planners. Fees should be agreed on in advance, but sometimes the advice is free.

Another common mistake is a failure to keep an open mind about investment opportunities. Many people invest in just one thing and stick with it. Huge sums of money are still locked away in passbook savings accounts, which typically pay interest of only 51/2%. Higher yielding money market funds, Treasury bills, short term income trusts or tax deferred annuities are safe as well as rewarding, but many people are in the words of one savings bank president too lazy or afraid to move their money. One of the biggest mistakes most people make with their money is not hedging their assets and not diversifying their investments. If you have a variety of investments, you stand a better chance of riding out any financial storm.

The worst mistake an investor can make is to assume he or she will not make a mistake. It may be comforting to learn that some of the most knowledgeable people in the world of finance have made some awful gaffes with their own money.

Recent presidential candidate and Senate Minority Leader Robert Dole, for example, once invested in what was called a sure thing a piece of an oil well. The only problem was that there was no oil in the hole. Senator Dole is still trying to figure out what his percentage of zero is. The lesson here: Investigate carefully before you put your money into an investment, and if the person selling it calls it a sure thing, hang onto your wallet.

You wouldn't expect former New York State banking commissioner Muriel Siebert to be easily fooled. Yet she once bought a real estate tax shelter because it seemed like a decent tax write off. Some of the biggest people in the country were in on the deal. The shelter turned out to be a fraud, and the IRS disallowed it. Siebert had to pay back taxes and interest.

Barbara Thomas, a former member of the Securities and Exchange Commission, once saw a nicely priced co op apartment that she wanted to buy. But she chose instead to spend the down payment on a vacation trip to China. Well, China is still there, but the apartment is now worth at least five times what Thomas could have bought it for and she vows in the future that when she sees a well documented good deal, she will grab it.

Wayne Nelson, a Merrill Lynch vice president, once saved some money for a swimming pool but instead sunk it into a speculative stock that he bought on margin, with borrowed money. The stock plunged, and he lost his entire investment in a week. Nelson says that taught him that buying stock on margin is a double whammy. It can buy you twice the trouble for half the money.

Douglas Casey, the best selling author of Crisis Investing and Strategic Investing, admits to ignoring his own advice. In his second book, he predicted that the stock market would surge by the end of 1982. He was right. But instead of buying stocks as he told his readers to do, he remained an aggressive short seller right through December of that year. The moral: When you have a well thought out plan, be sure to follow it.

just think of all those newspaper stories about other successful men and women who have been duped into bad business deals or tax shelters that bombed. Why is it that smart people so often make dumb investments? These victims seem incapable of leaving money lying around in the bank, earning nice interest. Highly acquisitive by nature, they are willing to go out on too long a limb with their capital. Then, too, they tend to be busy people whose schedules are packed to the max. So they turn over the details of their financial lives to someone else. But the stewards they choose are often extreme risk takers like themselves.

To recapitulate, here are ways you can head off serious losses in your personal finances:

Define your goals. Give careful thought to what you want your money to do for you. Then follow through, by saving and investing.

Keep careful records, and review and update your financial plans regularly.

Get your advice from professionals stockbrokers, bankers, attorneys, accountants, insurance agents and financial planners. Make sure they coordinate all the advice they give you.

Keep your knowledge of investments up to date by reading widely.

Put your money in a variety of investments that can flourish in different financial climates. That way you can minimize the cost of any errors.

Push yourself hard to ask questions of yourself, your advisers and anybody trying to sell you an investment. Remember: Nobody is infallible, and there are no dumb questions only dumb answers.