First, cut down on credit card debt. "Carrying debt is obviously a bad idea," says AuWerter. She advises only carrying a maximum balance of 50% of your credit limit. So, if your credit card has a $5,000 limit, carry only $2,500 worth of debt on that card at most. "Thirty percent of your credit score is based on the amount that you owe," says AuWerter. Part of that number comes from how much of your available credit you're using. So keep balances low, or pay them off in full each month.
AuWerter also advises against co-signing for loans. Not only do you put your credit score at risk, but if the loan defaults, you'll be held responsible. "Too often, people look at this very casually," says AuWerter. "I think it's a better strategy to give a friend a cash gift than to co-sign a loan."
If you're the parent of a college aged student, listen up; AuWerter advises that when making long-term financial plans, consider yourself and your retirement before your kids and their school loans. "There are loans for college. There are no loans for retirement," she says. Max out your 401k contributions and set up an IRA. Then, if there's any money left over, put that aside for your children's college fund.
In addition, plan ahead for any health-related costs that may crop up, including those for any aging parents you may be taking care of in the near future. "A nursing home can easily set you back $75,000 or more a year, and Medicare does not cover long-term care," says AuWerter. For the typical middle-class family, she suggests considering long-term care insurance in your early sixties. This will allow you to still be eligable for the insurance, but gets you into a plan before the premiums become too high.
Finally, don't avoid the stock market. While many portfolios have taken a big hit lately, don't stop investing. "Over the long haul, the stock market has consistently gone up," says AuWerter. If you're a long-term investor, ride it out. The market will bounce back eventually. For short-term money, though, AuWerter suggests keeping six months worth of living expenses in a cash account for emergency purposes.
To learn more about common money mishaps, or to find additional personal financial advice, click here to visit www.SmartMoney.com.
By Erin Petrun