Avoid These 5 Major Money Mistakes

Marriage, compound interest, and estate planning are all ripe for errors.

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We all make mistakes. But part of life is admitting them, and then working to fix them. You might be surprised how major some money mistakes can be. Examine your financial habits carefully, and then determine whether or not you are making any of these five major money mistakes.

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1. Spending Too Much

This mistake is kind of obvious. But it is also one of the money traps that is easiest to fall into. Spending too much isn't just about exceeding your income (although that is a big part of it). Spending too much also encompasses getting things that you think you can afford, but that you might not need.

Some of the biggest offenses are in the areas of "acceptable" debt: home, education and car. Just because the mortgage lender says you are approved for a certain amount, it doesn't mean that you should get a bigger house even though your family would be just fine in a more modest home. The same is true of paying a premium for an education, or for a car -- or for anything else.

Focus on value, looking at what you can afford, and what will deliver what you need for the lowest cost. Live within your means, avoiding debt when possible, and keeping your debt to a minimum when you borrow.

2. Not Taking Advantage of Compound Interest

One of the keys to building wealth effectively is taking advantage of compound interest. This means that you need to start saving early, whether it's for an emergency fund or for retirement. Build a habit of saving -- and investing -- early, and you will have more time for compound interest to work for you, helping you toward a more financially secure future.

3. Inadequate Protection for Your Assets

Many people overlook insurance, and this is a major money mistake. People who have been in a home for years sometimes forget to increase their coverage to match the growing value of the home. Others do not get adequate coverage for their autos or life to begin with.

Assess your needs (you may need a financial professional to help), and make sure your assets are adequately protected. That way, you experience less financial devastation in the event that something unexpected happens. This is especially important with regard to life insurance if you want to protect your family's future.

[Visit the U.S. News Personal Finance site for more insight and money management tips.]

4. Neglect of Estate Planning Issues

No one likes to think about the necessity of estate planning, especially the part that involves the will. However, it is important. Without a will, power of attorney, health care proxy, and other aspects of future planning, you are not in control of your finances. Speak with a knowledgeable financial professional or estate planning attorney to help you organize your money so that it is properly protected and distributed according to your wishes.

5. Disunity in Money Issues in Marriage

One of the most important things you can do for your money is to be on the same page with your life partner. In order to be financially successful as a family unit, you need to have common money goals to work for, and be on the same page with money. If you do have different money styles, it is important to compromise so that you are working toward common goals. Additionally, divorce can be financially devastating, so you want to check compatibility and work on your marriage so that you keep it fresh.

Pinyo is the owner of Moolanomy Personal Finance Blog, which covers a wide range of personal finance  and investing topics, with features that include reviews, comparison guides, and Q&A sections.