Money Mistakes Many Of Us Make

Farnoosh Torabi reveals five common finance errors
3:00 | 10/04/12

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Transcript for Money Mistakes Many Of Us Make
Well -- mistakes with money. -- of course the question is how can we minimize those mistakes step one understanding what those mistakes actually are here to tell us about five money mistakes. The -- -- -- on our finances is Farnoosh Torabi should host the financially fit on our partner Yahoo! finance firms thank you so much for being here because every time you stop by ten. I'm saving money in some hours Saturday and -- but you've got some tips here that really remarkable when you think of the first we're talking about his insurance. You carry insurance beyond your medical insurance. We know we we know we need medical insurance that's a no brainer but beyond that I'm talking about long term disability insurance most Americans don't have -- Because we underestimated. The risk. Maybe being out of work for three months or longer are and and most Americans when they're surveyed it would -- that they didn't have income coming in. For three months they would be financially -- -- and so what you wanna do is look into maybe getting some long term disability insurance through your employer. It's like ten to twelve dollars a month it's their freedom replace -- -- up to about 670%. In the event that you are out of work disabled and remembered disabilities -- is breaking your armor -- -- like it could be a mental illness including depression could be something that really. Keeps you in -- in you can't really physically work. If you don't have your employer you can also get in the open market -- -- market it's about. Two to 3% of income typically. So it is an insurance and you re not use it but its security and it's good to have it's not taxed. And is not tax a listening -- getting six or 7% and you're in com -- And then you're not paying taxes like getting your full paycheck. And especially let's go to predict accidents or some kind of on for seen event that's gonna happen we can't you that's obviously -- -- -- -- -- -- Talking about taxes one of the things you mentioned is actually reviewing your taxes yet central pitfall. Especially if you're in a -- in a relationship and your spouse is the one primarily doing the financial paper -- and -- that's normal in most relationships there's one person that's the -- and they're doing all that. That that you know that the finances and number crunching but if so that's not you at the very least you need to look at line 22 of your 1040 tax return and that -- -- -- line Tony -- it is an adjusted gross. In com I was talking to a lot of -- accountants and and CPAs about what's the one thing people overlook and they -- this is that this is the line you wanna really. Zoom in on. What this tells you is how much your household makes the gross -- subtracting deductions and exemptions so you -- -- look at that they OK maybe looking at all the numbers closely but is really reflect. Our lifestyle and how we're spending. If there any mistakes on your tax return whether they were intentional are not if you sign that tax return you are on the hook for any sort of penalties -- even jail time. So you know it's is against extreme it can be -- You know. Very Aniston are running very extreme but better yet you better know what your sign -- IRS doesn't care where they're gonna cut you. But -- command and I don't -- did you not know about. The united Arab -- -- benefit -- error and that's hard to -- What are you talking about is debt management vs. Debt settlement right what is it as such and mistreat a lot of people because there's so much marketing on the debt settlement side if you go online new look at you know -- you you -- -- Yahoo! Search and you -- -- -- -- my dad -- come get out of debt read you'll get a lot of debt settlement firms debt settlement. Definition they settle your debt for say fifty cents on the dollar -- does affect your credit score negatively. -- -- settling you're not paying it -- fall. Debt management on the other hand is typically run by nonprofit agencies like the National Foundation for Credit Counseling or Money Management International. The entry debt management program they don't -- your debt what they do is they work on your behalf with your creditors to adjust your loans adjust your debt. Certainly they get to interest rates for a wild aid the Arenas and the fees that were attacked on focus that you can get to a comfortable place to pay off that debt. Every month it could take three or four years it's not a quick fix debt settlement as -- quick fix so has immediate. Gains and and benefits they hit it's gonna take on your credit yes and that. Why that's bad because it give a low credit -- you gonna get. Dating to when you -- to get a loan and you want the best interest -- and I can get it -- and that Haiti in the long way -- what about closing credit cards. Yes a basing your credit and -- it. We want to close our credit cards after paying a -- it feels good right but the danger there is again -- -- -- credit card to things happening you lose the line of credit under your name -- -- -- calculators like to see that you have as much credit and available to you as possible. Additionally you will at some point lose that history of that card not right away the -- and disappear in your credit report but eventually. We did an activity due -- closing it will jump it will fall off your credit report and that history could also. Disappear and history is good for your credit score you win it's a positive and it's not underway and it's very re not been -- -- your credit history how important is what I wanna say is that earlier you start establishing -- better. And if you lose a -- you've had since college he sort of reset and clock ran itself a little -- -- -- are worth -- try done from all those books that you bought right. The last thing -- -- here's financial passwords -- if we don't know our financial -- house -- potentially gonna cost of some well again if you're not household where one person is the primary CF the chief financial officer of the household they're paying the bills are managed in the bills. They know all the past all right look we -- pass -- we not mean all of the past threats to if your partner who's in charge of finances can't. Manage the finances for whatever reason for -- period timing you have to go and pay the bills and you have to go in and and move money around in and then you're. -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- So while we say keep a running list of all the important. Accounts that you had that you share with your partner. And not only an immediate safety deposit box it's fireproof but also online at sites like lakers' nine common past packed -- -- virtual sites free. To -- you can store all year. Passwords and and account user names. -- -- and it secure its speed access in case of an emergency and this is what this is all about we're not saying -- every -- and issues. O line issues -- protect and at least doing what -- these have to think you're gonna say amnesty burnished her obvious from Yahoo! finest thanks for stopping by my pleasure.

This transcript has been automatically generated and may not be 100% accurate.

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