Making the Most of Your Finances – Tips for Avoiding Common Financial Pitfalls

When it comes to managing your finances and making the most of your money, what you avoid can matter as much as what you do. It is not enough to set money aside from every paycheck and invest your money wisely. It is just as important to avoid investment fraud and other scams that could separate you from your hard-earned money.

A little bit of common sense and some good old-fashioned skepticism can go a long way when it comes to managing your investments. Learning about the financial markets and how they work can help you spot potential scam artists and keep them far away from your money.

Know the Going Rate

One of the biggest mistakes investors make is chasing higher yields at the expense of safety. So many investors focus solely on the return on their money, without stopping to think about the return of their money.

Risk and reward are inextricably linked, and that is something no investor can afford to lose sight of. Keeping track of current interest rates is one of the best ways investors can protect themselves.

Once you know how much Treasury bonds, certificates of deposit and other safe investments are paying, you can use that knowledge to assess the investment offers that come your way. If Treasury bonds are paying 2 percent and you are pitched an investment with a 6 percent yield, you can bet that investment is three times as risky as those government bonds.

Make the Right Arrangements

One of the biggest dangers of investing occurs when one spouse takes the reins and handles all the financial decisions. While there is nothing wrong with one spouse being more involved in investment decisions, it is important for the less involved spouse to have a basic understanding of how the money is being handled.

Spouses should talk to each other about their finances, from where the money is invested to which brokerage firms are handling the funds. It is a good idea to make list of all the financial assets of the household, from workplace retirement accounts and individual stocks to mutual funds and life insurance policies. Having that information in a place both spouses can access will provide protection in the event one partner is killed or incapacitated.

Neither a Lender Nor a Borrower Be

There is a reason the Bible includes so many warnings about borrowing and lending money. Those wise folks understood the inherent danger of lending money to family members and friends. They understood how those loans, made with the best of intentions, can end up destroying families and shattering trust between formerly great friends.

Lending money can be fraught with peril. If you want to help out and have the means, consider giving the money as a gift instead. If you must make it a loan, be sure to document everything, from the interest rate to the length of the loan, in writing and have the other party sign and date the document.

Cosigning a loan for a family member is another thing that can seem like a good idea at the time but turn out to be anything but. It can be difficult, and heartbreaking, to turn down an adult child who needs a cosigner to buy a car or lease an apartment. Even so, it is important to be aware of the potential pitfalls of such a situation.

If you cosign a loan for a friend or family member, you will be on the hook if that person fails to make the payments or follow through on their financial obligations. If you and the other party put your heads together, you should be able to come up with a different solution.

If your daughter needs a car but cannot secure financing on her own, you could suggest that she purchase a cheap but reliable vehicle while saving the money for a better car. If your son asks you to cosign a mortgage loan, try suggesting that he look for a lower priced property. Being open and honest is the best way to avoid financial problems and the misunderstandings and hard feelings they can engender.