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Avoid these 3 big money mistakes in 2016: Advisor

Financial success doesn't just happen — you have to work at it. You may think that you are pretty money savvy; however, even the most fiscally successful individuals tend to be guilty of making these three big money mistakes.

1. Not having a goal and a plan for how to achieve it. Without a plan or goal, you will lack focus and end up spending more money. A dollar here, a dollar there might not seem like a lot at first, but not knowing where your money is going or what your expenditures are can greatly affect your financial security.

Money mistakes
Andrew Rich | Getty Images

To create a goal that you will actually stick to this year, concentrate on reducing three of your largest expense categories and attempt to whittle those down.

The key is to make any goal a habit first. And most important, make it a tiny one. By focusing on reducing just a few areas of overspending, you will be less likely to feel deprived and more likely to stick with your goals in the long run.

For example, you may spend the most money each month on eating out, entertainment or shopping. Focus on reducing each of those three categories by 10 percent to 20 percent over the first six months of 2016. This could mean bringing your lunch to work a few extra days per week or replacing one of your nights out on the town with a get-together at your house instead.

Also, be careful not to change your lifestyle too drastically right away. Your goal should be to reduce expenses gradually over time in order to change your long-term behavior. So start small and go from there. This means eating out only one time less in January, or if you tend to buy lunch every day, aim to bring your lunch from home just one or two times in the first few weeks.

2. Only one person in the family knows where the money goes. Most families have one person who's largely in control of managing the money — and that's fine. The problem occurs when this leads to financial atrophy in the family, where no one but the person holding the checkbook knows where the money goes or is involved in the decision-making process.

If you are not part of the bill-paying, investment decision-making and retirement-savings process, you're at risk if your spouse dies, becomes seriously ill or if you get a divorce. Know the details of your family's finances, spending, investments, debts, savings, etc.

Have monthly meetings about your financial situation so everyone is "in the know." These meetings don't need to be onerous. Sit down with your family to review the balances on all of your accounts, review your rate of savings relative to your income, and discuss if anything needs to be tweaked.

There are numerous benefits to sitting down as a family to review account balances and savings rates together, the most basic of which is that everyone in your family will now be aware of what accounts are out there.

Knowledge is power. Laying all the cards on the table is a powerful way of fostering financial peace of mind among all family members. Coming together as a family to review the family budget not only encourages discussion of finances, in general, but creates strong awareness and mindfulness around spending and saving, which can have a powerful impact on the bottom line.

Finally, family finance meetings have the added benefit of fostering healthy communication and teamwork among all family members and can teach younger members important financial principles that will benefit them throughout their lives.

Be sure you know where all important documents are stored. Examples include tax records; statements for all retirement, checking, savings and brokerage accounts; insurance policies; wills; deeds; mortgages and auto titles.

Know the passwords to important financial websites, such as your checking, credit card and investment accounts. When tax season comes around, get involved in the process and help collect the tax documents your accountant needs to complete your return.

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Don't turn your money over to a financial planner without staying involved. Typically, the individuals who find themselves victims of a scam or an unscrupulous advisor are those who give carte blanche control to them.

3. Investments (particularly retirement) aren't diversified. Diversify, diversify, diversify — especially as you get closer to retirement. The start of the new year is a great opportunity to take a look at your investments and ensure that you are properly diversified.

How do you know if you're properly diversified? No single stock should account for more than 20 percent of your retirement savings — I'd be nervous with anything greater than 10 percent.

If you are not yet an investment guru, that's fine, but don't let it keep you from making your money work for you. One option is to put your money in a "target retirement" fund that's close to your retirement date.

"Come up with a plan, focus on three trouble-spot spending areas, get involved and make sure your money is working for you in a diversified portfolio."

Target-date retirement funds are allocated and diversified based on your specific retirement date, and they rebalance automatically as you get closer to retirement.

Investing in exchange-traded funds and mutual funds can also be an option for building a well-rounded portfolio. Each share of an ETF or mutual fund holds a bucket of stocks and/or bonds. Some ETFs and mutual funds track to a specific index, such as the S&P 500, but note that others can focus on a very specific sector of the market, such as emerging markets.

If you're just starting out and looking for more diversification in general, it may be best to start with general index-tracking investments and get comfortable with those before branching out into more specific market areas.

An ETF or mutual fund focusing on an individual country, such as China, or a specific industry, such as utilities, may not be ideal for a newer investor with limited investment experience.

Now is the time to take control of your financial future. Make your new year's financial resolutions happen!

Come up with a plan, focus on three trouble-spot spending areas, get involved, and make sure your money is working for you in a diversified portfolio.

— By Stacy Francis, president and CEO of Francis Financial