Your biggest money mistakes -- and how to avoid them

Not saving for a rainy day

Establishing an emergency fund is essential.

"Life is full of emergencies, and we need money available to keep these emergencies from becoming catastrophes," says James A. Roberts, professor of marketing at Baylor University and author of Shiny Objects: Why We Spend Money We Don't Have in Search of Happiness We Can't Buy.

Most experts recommend setting aside at least six months of living expenses in case of job loss, medical expenses or other emergency. Without those funds, you’ll have to use high-interest credit cards or borrow money from family.

The fund should be used for actual emergencies — the roof springs a leak or a tooth breaks — not a designer shoe sale or Caribbean vacation.

Smart move: Start saving.

Roberts recommends setting up a separate emergency account to minimize the temptation to raid the funds for nonemergencies. Forget mutual funds or CDs; a savings account is the best option.

If there isn’t a lot of wiggle room in the budget, Roberts suggests taking on extra work, selling items on eBay or having money taken out of each paycheck.

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