Money

Are you making any of these five critical financial mistakes?

Call it Money Mistake #1.

Your child, sibling or significant other wants to buy a car, rent an apartment or get a credit card and doesn’t have the credit bona fides to do it on their own. So they ask: Will you co-sign? Here’s your answer: Not so fast.

A new report from CreditCards.com shows some 38 percent of co-signers had to pay some or all of the bill because the primary borrower did not, and 28 percent experienced a drop in their credit score because the other person paid late or not at all. Even worse, nearly as many said their relationship was damaged as a result.

Co-signing may seem simple, but it’s a big responsibility. If the person doesn’t pay, you’re on the hook for that debt — and their payment history can drag even your pristine credit score down fast. What’s the alternative? If you have a child or spouse with no credit history, you can help them build one by adding them as an authorized user to a credit card of yours, or direct them to a bank that issues secured credit cards.

In the case of an apartment or car loan, understand that there’s a big difference between a child who just graduated college with a job (who can afford to make payments) and a person who’s being turned down because they truly can’t. Don’t go near the latter.

While co-signing is often a mistake, it’s not the only money mistake out there, says Eric Meermann, a certified financial planner in White Plains, New York, who ticked off a good number of others for us in short order. With his help and that of a few other experts, we rounded up four more biggies — and advice for how to avoid them.

Mistake No. 2: Not setting doable goals

Ever made a New Year’s resolution to start going to the gym five days a week? By mid-January you’re out of Boot Camp and back to the bagels.

Why? Because you took on too much at once. It’s often better to slowly ramp up the progress by setting and surpassing small goals, like going once a week, then twice. The same is true for financial goals.

Read more: Jean Chatzky's 3 ways to make money last through retirement

“Someone will run up $10,000 of credit card debt, and their goal will be to pay it off in six months, and that’s unrealistic,” says Kelly Graves, a certified financial planner. Instead, figure out how much you could pay back toward that debt each week or each paycheck and nip away at it.

“Once people accomplish a small goal, then they’re more apt to try something else and set other goals,” says Kristy Archuleta, editor of the Journal of Financial Therapy.

Mistake No. 3: Not talking about money

“[Many] couples and families either don’t talk about money because they’re afraid it’ll cause conflict, or [because] when they do talk about money, it does cause conflict,” says Archuleta. Still, getting things out in the open is a must, because that’s the only way goals get set and problems get solved.

Pick a date and time and put it on your calendar. Then come prepared with 2 or 3 things you want to discuss: Are we in sync with how much we’re saving and investing and how we’re going to use that money? Are we making the most of the benefits our employers offer? Talk for 30 minutes to an hour, then stop and schedule another time to talk next week. It gets better. Trust me.

Mistake No. 4: Confusing needs and wants

We tend to think of this as something we grow out of with age. We don’t. Money is a limited resource no matter what you have, and that means you have to decide — preferably consciously — how you want to allocate your resources. Too often we spend first and think later. It’s easy, too, for a lifestyle or socioeconomic grouping to play a part in this, Archuleta says.

Read more: Jean Chatzky's advice on how to stop losing sleep over money

If other people in your workplace or social circle dress a certain way, drive certain types of cars or vacation in certain destinations, it could mean mistakenly viewing these things as needs. Before you plunk down the plastic, ask yourself — what would happen to me if I don't buy this? That’s usually enough of a question to sort out which is which.

Mistake No. 5: Using debt for everyday expenses

And while we’re on the topic of credit cards. My number one money tip for anyone at any age? Spend less than you make.

Routinely spending more than you earn means “you’re digging yourself further and further into a hole of negative net worth,” says Meermann. If you can’t handle credit cards, use debit cards or spend cash instead.

--- with Hayden Field

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