07/31/2012 06:38 pm ET | Updated Sep 30, 2012

My 10 Dumbest Money Moves -- And How You Can Avoid Them

Most of what I've learned about money I didn't learn in books, or by being a CPA, stock broker, or financial reporter. I learned it the hard way -- by making stupid decisions and missing major opportunities. Here are mistakes I've made and you should avoid.

My 28-year-old niece and I were recently talking about money. She's (finally!) become interested in accumulating more and spending less, and because I've been in the personal finance business in one capacity or another since before she was born, she logically assumed that I've always done everything right and know exactly what to do at all times.

Confession time: I've blown it big on more occasions than I care to mention. In fact, most of what I've learned about money I didn't learn in books or by being a CPA, stock broker, or financial reporter. I learned it the hard way -- by making stupid decisions and missing opportunities.

So for her sake, and maybe yours, I've put together the following list of 10 mistakes -- most of which I've made -- that you really should try to avoid.

1. Not having a goal

Whether sitting in your car or standing at the airport, you'd never start a trip without a destination in mind. The same logic applies to money. You should decide exactly what it is you'd like to accomplish, then remind yourself of that goal early and often. Are you trying to buy a house? Become self-employed? Save for your kid's college education? Retire in your 50s? Whatever it is, write it down, picture it and share it with anyone else who you're counting on to help you accomplish it. Your goal isn't money -- money's paper. Create goals -- both short-term and long-term -- then decide how much money you'll need to reach them. Take it from someone who wandered aimlessly for years: goals work.

2. Not having a spending plan

If you have a job of any kind, you can bet that your employer tracks every dime they make and every dime they spend. Granted, they have an incentive to do so -- both income and expenses affect their income taxes -- but it's only logical to want to know where your money is coming from and where it's going.

Tracking and categorizing your expenses with a budget -- or spending plan, as I prefer to call it -- is the single greatest tool you have to accomplish your money-related goals. A plan that includes what you intend to spend on things like entertainment, food, housing, etc., vs. what you actually spend allows you to fine-tune your finances and find places to save. Not doing this is like driving with your eyes half-closed: You might reach your destination, but you're certainly going to take more time getting there.

If you're not writing down every penny of money coming in and money going out, go to this page and download one of many free budgeting worksheets we link to there. Then read 4 Reasons Budgets Fail and How to Create One That Won't.

3. Attempting to derive self-esteem from possessions

Although we all know that money doesn't buy happiness, very few of us act that way. Instead, we seem to go out of our way to appear successful by driving the right car, living in the right house, and wearing the right clothes. Nothing wrong with nice things -- if you can afford them. But here's something that life has taught me. It's a quote from my most recent book, Life or Debt 2010: You can either look rich or be rich, but you probably won't live long enough to accomplish both.

Attempting to derive self-esteem from possessions is dumb on two counts. First, it's expensive. More important? It doesn't work.

4. Doing what everyone else is doing

One of the world's wealthiest men, Warren Buffet, said, "Be fearful when others are greedy; be greedy when others are fearful."

During the recession-induced stock market rout that began in the summer of 2008 and bottomed in March of 2009, the Dow Jones Industrial Average plunged all the way from 10,000 to 6,600. It was at that time that I bought most of the stocks I now own in my online portfolio. I didn't buy then because somebody on TV told me to -- the "experts" were as fearful as everybody else. I bought then because I'd missed similar opportunities in similar downturns before, and I was determined to learn from that mistake this time.

Likewise, when the housing bubble was at its zenith, many of my friends were buying as many houses as they could possibly borrow for, even though it should have been apparent that prices were over-inflated. Now they're broke -- and I'm shopping for real estate. Again, not because I'm smart, but because I've also missed that opportunity before. Hence this recent story Why You Should Buy Stocks and Houses Now.

It's common knowledge that the economy runs in cycles of boom and bust -- yet when times are good, everyone seems to believe that trees grow to the sky. When they're tough -- like they are now -- the same people stand like a deer in the headlights.

If you're convinced the economy is going to zero, buy guns and canned goods. But if you can reasonably expect a recovery someday, invest -- even if that day is a long way away, and even if it's possible things could get worse before they get better.

5. Starting to save large and late rather than small and soon

If you're 25 and you save just five bucks every day -- call it $150 a month -- and earn 10 percent, by the time you're 55 you'll have $340,000. If you wait till you're 45 to start accumulating that same 340 grand, you'll have to save $1,700 every month for 10 years. True, you can't earn 10 percent today, at least without risk. But over time and by taking a measured amount of risk, you can.

6. Paying interest to buy things that drop in value

There are only two situations where paying interest makes sense, at least mathematically. The first is when the purchase goes up in value at a rate greater than the rate of interest you're paying to finance it. Example: You borrow money at 5 percent to finance real estate that you think might return 8 percent on your overall investment. Other examples might include a business loan or a student loan -- in other words, something that's going to return more (at least potentially) than it costs in interest payments.

The other situation where paying interest makes sense is when you can earn more on your cash than you're paying in interest. Example: After taxes, I'm only paying about 3.5 percent to finance my house. Since I think can make more than 3.5 percent after-tax in the stock market, I'll forgo paying off the mortgage, even though I have the cash.

Obviously there are times when we have no choice but to borrow. The point is that unless the math works out, the less you borrow, the better.

7. Turning down free money

If your employer is offering matching money when you participate in your company's 401k or other retirement plan, and you're not participating to the extent necessary to get the full match you're literally refusing free money, not to mention ignoring an opportunity to get a tax deduction and grow your retirement savings tax-deferred.

There are only two kinds of people who turn down free money: people who really, truly can't afford to put up the money to get the match, and people who aren't thinking it through. And yes, I've been one of those people.

8. Buying a new car

Everyone knows that cars drop 15-25 percent before you get them home from the showroom. Which makes it odd that so many people continue to buy one. My girlfriend just bought a 2009 BMW that still smells new for $26,000 -- about $7,000 less than a new one would cost, and they look pretty much identical. This is one mistake I can happily say I haven't made -- I've never spent even that much on a car, or owned one that new.

If you're buying a car for transportation, it doesn't have to be either new or fancy. Cars are depreciating assets: the less you spend on one the better, especially if you're borrowing money to do it.

9. Buying more house than you need or can afford

It's practically gospel: spend 25 percent of your gross income on a mortgage, regardless of what size house you really need. While spending the maximum possible amount you can afford will make real estate agents happy, will it make you happy? When you buy more square feet than you're going to actually live in, you're required to insure them, furnish them, clean them, heat them, and cool them. All of that costs money, time and stress.

Buying a big house makes sense if you're trying to make a leveraged bet on the future of housing prices -- or if you're trying to impress your friends. If you're not doing either, buy what you need and put the money you save into more productive things, like meeting your financial goals.

10. Not protecting your good credit

Credit is like lots of things in life: simple to screw up, a bear to fix. And even though you may think it doesn't matter, some day it might, and probably will. If you've already messed up your credit, take the time and steps necessary to fix it - here's a recent story on the basics -- and then keep in good shape.

That was my list of dumb moves to avoid, but I'll bet there are plenty of things that you could add. So let's hear it!