Diana Clement: Ten money mistakes you need to avoid

Thoughtless spending - as little as $1 at a time - is a financial killer.

Newbies make mistakes. It's the same whether you're learning karate, studying another language or managing your money. Whether you're a new investor, a new home-buyer, or a new KiwiSaver, people make classic mistakes with their finances that can be avoided.

Partly, this is because our brains aren't wired for finances and, as a result, even smart people make little mistakes that grow into big money drains. We also assume that handling money is natural and don't know what we don't know.

Here are some of those easily made mistakes to avoid before we live to regret them.

Spending frivolously. Most people who think it's impossible to save don't truly analyse their spending and justify wants as needs. Thoughtless spending - as little as $1 at a time - is a financial killer. Solution: set a monthly savings target and put it aside before assigning money to other spending. Always ask yourself "Do I really need this?" before spending, even on a cup of coffee.

Living on borrowings. If you buy your necessities on credit, you're going to go through life struggling. If you carry a balance then everything you buy costs you 20 per cent more than the next person. Those never-ending interest payments eat up any chance of financial stability. Often, says Tom Hartmann of Sorted.org.nz, borrowers only look at the minimum payment when taking on debt and fail to understand how unpaid interest compounds and increases the sum you owe. Solution: create a long-term budget with the goal of paying off credit card debt once and for all then direct the payments to saving.

Choosing the wrong KiwiSaver fund. Many new KiwiSavers are automatically enrolled into a conservative fund and that's where they stay. But a conservative fund may well see you short-changed in retirement. What's more, Hartmann says, many people choose their provider on branding rather than looking at investment returns. Solution: if you're not sure, get advice in choosing a fund. That could be with a fee-based financial adviser (hint, there aren't many who want to deal with such small fry as KiwiSavers so check out SifaNZ.org for one that charges by the hour). Otherwise check out the KiwiSaver fund finder or Sorted.org.nz.

Assuming you have the Midas touch. Newbie investors sometimes assume that whatever they touch will turn to gold. Anyone who bought a first home in Auckland in the past five years probably thinks this. Newbies to foreign exchange, derivatives and other short-term trading are some of the worst at falling for the Midas-touch curse. They have a few early gains and think they have what it takes to get rich quick. It often ends in tears. Solution: be humble and keep learning. Never assume that financial markets will only go up.

Buying or renting too much house. If you want money to go further, be modest in your living arrangements. What you save on housing can be invested. A related mistake is to spend your "spare equity" on kitchens, bathrooms, cars and credit card debt. Solution: equity isn't something to spend. It's something to hoard and grow.

Ignoring the stockmarket. In New Zealand we understand bricks and mortar. It's a really good idea to diversify into a variety of other investments including shares. You'll get some through your KiwiSaver. Solution: up your payments into a balanced or growth KiwiSaver fund or buy index tracker funds containing shares online through your bank or with the help of a financial adviser. Don't delay. Compound growth means the earlier you invest, the greater the returns by retirement.

Investing for tax breaks. An investment should make money. If you're investing to lose money for the tax breaks, then have a rethink. People who have a vested interest in selling property, such as marketing companies and real estate agents, will often bang on about negative gearing, which involves reducing tax by making losses. Solution: do a worst-case scenario for any loss-making investments or those aimed at tax breaks. Assume your tax break will disappear at some point and ask yourself what's in it for you.

Failing to declare to your insurance company. Many people think that insurance companies are stupid. "They won't find out that my son was the regular driver of the car", or "I'm not going to tell them about my raised cholesterol", or even failing to realise that you have to declare criminal convictions. Leaving out anything relevant to insurance very often ends in tears come claim time. Insurers will go to some lengths to find out about undeclared health conditions, by requisitioning your medical history from your doctor, or undeclared criminal convictions by getting a Ministry of Justice Criminal Convictions Report. Solution: always be completely honest with an insurance company. Err on the side of caution and declare anything that could be remotely relevant. Ask your insurer what sorts of things you need to declare. You don't want to find yourself in hospital in the US just to be told by your insurer that your policy was void from inception because you didn't declare a kidney stone from 10 years back - as happened to a Kiwi family.

Not insuring yourself. While on the subject of insurance, not having it is a big mistake made by those who feel 10 feet tall and bullet-proof. It does happen to people like you. Solution: insure your house and contents, motor vehicle, income and life (if you have dependants).

Not setting a good example to our children. Parents take on their job with little training and many set in train a series of events the outcome of which is children draining their retirement savings. Monkey see, monkey do could equally apply to children. If they see parents spending every last cent on consumer goods or going into debt to pay for a holiday or new kitchen, guess what? They'll do the same. What's more, they might develop a taste for your retirement savings. Solution: learn to budget and share the knowledge with your children. Putting them on budgets from young will pay off as well.