The 10 worst money mistakes

There are lots of ways things can go wrong with your finances. Here are ten of the worst money mistakes - and how to make sure they don't trip you up.

No matter how sensible and disciplined you are with your money, mistakes can still happen. Sometimes things go wrong simply because you didn't know there was a better way.

But forewarned is forearmed.  

So, here's ten of the worst money mistakes that I think you should try to avoid at all costs:

1. Missing a payment on your balance transfer credit card (or paying late)

There's nothing better than a top balance transfer credit card for kicking your debts into touch. This is a great way a putting a full stop on your interest payments for a while, giving you plenty of time to chip away at your balance.

Of course, it's never good to make late or missed payments on any credit card, but it's particularly bad news for balance transfer cards. If you break the rules, your card provider usually has the right to cancel your 0% deal there and then, leaving you with a very costly debt with an average APR of 16%.

Luckily, all you need to do to is set up a direct debit payment from the word go, to make sure that doesn't happen.

2. Paying the minimum monthly repayment on your credit card

Just because you can pay a tiny amount off your credit card every month, that doesn't mean you should. If you need any convincing, just take a look at The credit card you'll never pay off.

I think it's a real worry that some card providers are sneaky enough to set the minimum monthly repayment below the amount of interest you'll be charged. In other words, your repayments won't even cover the interest you're racking up, let alone reduce the actual debt itself.

My advice: pay the maximum monthly payment you can afford, not the minimum monthly payment you're allowed to.

Otherwise, you may never get rid of your debt.

3. Leaving your savings to languish

Ok, it's not the end of the world if your savings don't earn the best possible rates, but why should you put up with it? I suggest you review your savings at least every six months to check how competitive your accounts are. If they're falling behind then switch pronto. You can do this easily by comparing everything on offer at our savings centre.

Recent question on this topic

• avmelissa asks:

  Am I able to close my Halifax ISA by going into their branch, taking my money and opening a new cash ISA at another bank ?

  • 
    CaptainFlak answered "Not if you want to keep the tax free status of the money, previous years ISA investments must be..."
  • 
    Pidgeon answered "You could do that, but the new ISA would be seen as a completely new investment, meaning you would..."
  • Read more answers

4. Withdrawing money from your cash ISA

It's the start of the new tax year, and that means a brand new tax-free savings allowance. Cash ISAs are a great way of earning a tax-free return and you can now save up to £5,100 in one, totally tax-free. But did you know if you've already paid in the full amount, and then you make a withdrawal, you won't be able to replace the money until the new allowance becomes available to you at the start of the next tax year?

If you need to get your hands on some cash, your ISAs should be the last port of call.

5. Underinsuring yourself

When it comes to life insurance, we tend to underestimate the amount of cover we should have. This could leave your family with a real financial nightmare if the worst happens to you. Read Life insurance: how much do you really need? for some top tips on getting it right. Then take a look at Eleven reasons why you need more life insurance to make sure you're fully covered at every stage of your life.

6. Buying at the top of the market, or selling at the bottom

Whether it's property or shares, buying at the top of the market, or selling at the bottom, is a surefire way to lose an awful lot of money. Of course, it can be extremely difficult to judge where the top or bottom might be, but do think very carefully before you take the plunge. For new homeowners, facing negative equity as soon as you step on the property ladder is a situation best avoided.

7. Missing the best mortgage deal

It's tricky in these post credit crunch times to get the best mortgage. After all, the top deals are normally reserved for borrowers with a large deposit. But that's no excuse for taking your eye off the ball. Your mortgage is probably your biggest monthly bill by far, so it makes sense to cut it down as much as possible.

So, whenever you come to the end of a deal, make sure you look around for a competitive replacement. You can do this using the lovemoney.com mortgage service.

8. Starting your retirement planning too late

There's no doubt the sooner you start paying into a pension the better. After all, they love nothing more than decades and decades in which to grow. Most pensions invest in the stock market, which should be a long-term strategy to iron out the troughs and capitalise on the peaks. Even if you're not using a pension - perhaps you prefer ISAs or property instead - don't leave it too late.

9. Forgetting the open market option

Most pension savers will buy an annuity when they retire to convert their pension pot into an income. When the time comes for you to take benefits from your pension, you must, must, must shop around for the best deal. This is known as exercising the open market option (OMO).

The difference in annuity rates paid by the best and worst annuity providers is huge, so you could really lose out by choosing the wrong one. Read Make this mistake and lose 20% of your pension to find out more.

Related goal

Manage on a small budget

It's not so much about how much money you have but what your relationship is with your money. It's all about quality and not quantity.

Do this goal

10. Overstretching your budget

Finally, there's no point in avoiding all these mistakes, if you then go and splurge too much money. Overspending is easily done if you don't keep a tight rein on your finances. Good budgeting is the key. Read How to budget in five simple steps for all our top tips.  

Compare financial products at lovemoney.com

This article was edited and updated in March 2010.

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