Kara McGuire: Money miscues

We've all made some bad decisions with our finances. Sometimes, learning the hard way is the only way.

By Kara McGuire, Star Tribune

Last update: July 26, 2007 - 5:18 PM

Nobody's perfect. Not even financial planners. And certainly not financial writers. Yet so much money management advice focuses on what's right rather than what can be learned from making mistakes.

To correct that situation, I persuaded some financial professionals to step out from behind the mahogany desk to reveal where their finances have room for improvement.

But in the spirit of the column, I'll share a couple of my own maladies, too.

I don't always shred my documents, despite being well aware of the dangers of identity theft. I'm also guilty of emergency planning paralysis. I admitted in March 2005 that I don't have a will to take care of my young family. More than two years later, and we still have no written estate plan. Can you say procrastination?

Last year, we settled on a guardian. Then I bought a do-it-yourself will program, which is loaded on our laptop but sits untouched. I'm reluctant to pay hundreds of dollars for a lawyer to draft a will, but clearly I lack the time or determination to complete the project on my own. So I made an appointment last week.

Along the same vein, my emergency savings are a bit anemic. Blame it on focusing too much on retirement and too little on today. Although I think that consumers who have good credit and two incomes probably don't need to bank six full months of living expenses, having more than $2,180.20 dedicated solely to emergencies is probably a wise idea.

Just ask Lucas Bucl, a certified financial planner with Accredited Investors in Edina. A $3,000 car-engine repair nearly emptied his rainy-day fund. He's replenished it, but said that he still might pad it further with his next pay raise or bonus.

My family has a Roth IRA that we could tap and savings bonds we could cash if we needed the money. We also have an opened but unused home equity line of credit and a low-interest-rate credit card as a last resort. But I'd like to bulk up our just-in-case account too, by trimming our spending on cable TV and food.

Nicole Rosandich, a certified financial planner and financial consultant, said her big "screw-up" was with credit cards in college. Despite her parents having the credit card talk with her, "I didn't put together that you had to pay them back."

She owed as much as $2,500 including interest and late fees once she "stopped ignoring them," and spent a year paying off debt and rehabilitating her credit score. She opened up a secured credit card -- a card with a credit limit tied to a savings account of the same amount -- to help raise her score.

Kevin Sale, founder of Sailor Financial in Bloomington, said he's guilty of paying too much attention to his finances. He downloads his data into Quicken every day, sometimes twice daily, although he admits that he could probably do it weekly instead. "[I] can overdo it a little," he said. "Money is important, but it shouldn't rule your life."

He also said that sometimes he ignores what he calls the "softer side of finance." For example, the numbers say that he should not pay off his wife's low-interest student loans quickly, but to invest the money instead. But his wife would like to be student-loan-free as soon as possible. The lesson here: Take the sleep factor into account. The numbers may point to a superior choice, but if another decent choice will help you get some Z's, be sure to consider the emotional piece of the decision.

Don't we all wish we spent more wisely? The planners I spoke to do.

Sale regrets buying on a whim. "Just about any quick purchase I've ever made ends up in the basement," he said. Latest example? Framed coats of arms from his family tree phase.

Bucl tells clients the tale of his "coffee kick" to illustrate how little purchases add up. A drive-through Starbucks made it much too easy for him to stop for a nonfat mocha four times a week or more.

Amazed that he was spending about $64 a month on caffeine, he curbed the habit and now has Starbucks once a week.

Rosandich had the same problem with eating out. Now self-employed and trying to bulk up her savings, she put herself on a spending diet. Each week she transfers a set amount of money into a spending account, and when it's gone, it's gone.

"If I would have [started] budgeting for myself from Day One, imagine the additional money I could have," she said.

Share your financial mistakes and how you've fixed them with Kara McGuire at 612-673-7293 or e-mail kara@startribune.com.