You can minimize how much you spend when it comes to investing by doing just a few things. Cutting how much someone spends on investing is one of the five painless ways to cut expenses in a report from Time Magazine.

One thing that you can do to minimize your investing costs is, of course, to go from a full service brokerage to one that offers cheaper trades. Then again, a lot of people aren’t comfortable with making decisions when it comes to their investments. There are some brokerages that will charge very little per trade, but they are going to let you make your decisions. The stock information that you are missing out on by picking out one of these brokers could be made up by searching the internet for investment information. You have to be a bit more hands on with your trades but you could save yourself a lot of money in the long run.

Another thing that eats at your money when it comes to investing is that you are being charged fees that are hidden in your 401 (k) or your IRA. When you have your money in these kinds of funds they are often put in mutual funds and there are recurring fees associated with them. Because these fees are deducted from the balance already in the account rather than charging you out of your bank account, they often fly under the radar.

The best way to help out your 401(k) and the fees associated with it is to stick with low-cost index funds. You can reduce your annual expense to as little as 0.2% of the balance. There are actively managed funds that can cost you up to 1.20% of your balance.

From the article:

On an account worth $100,000, your annual cost in index funds is a mere $200 instead of $1,190 with actively managed funds. So you’d save $990 a year by switching. But that’s only the start.

The money you save each year stays in the fund and grows. Let’s say a low-cost index fund and an average-cost actively managed fund both grow 8% a year for 20 years. Over that period, you’d end up with $75,678 more with the index fund by virtue of the additional compound returns from lower expenses; the index fund would grow to $449,133 while the actively managed fund would grow to $373,455. That’s more than $3,700 a year.

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When you first start out investing or even in life, you don’t always make the best choices. After all, you usually have to make mistakes to learn from them. However, not learning before hand when it comes to your financials could prove to be costly and damaging to your long term wealth.

Here are a few mistakes that are often made:

1) Procrastination. College is over, and now it’s time to get out there are really make something of yourself…tomorrow. I know this one well. In college, when you procrastinate you may not lose out on anything at all, I often put papers off until the last minute and still did well because I wrote the best papers under pressure. However, when it comes to your finances, again, you can’t procrastinate or you will damage your long term financial goals. Here are some of the consequences:

Fail to start investing soon and you’ll miss out on years of compound interest.
Don’t keep a budget and you could sacrifice control of your spending.
Buy now with the intent to pay off later and you’ll dig a debt hole that’s tough to climb out of.
Pay your bills late and you could damage your credit score.
Put off saving money in a rainy day fund and you could be caught unprepared in a personal
emergency.

2) Not diversifying your portfolio. When people start out, they don’t always know how to diversify out risk from their portfolio. While you can’t completely hedge yourself against something like the current recession, you can help your portfolio out a little. Investing in a wide array of save investments can lead to steady returns. While you may not get the “super returns” that some stocks give, some mutual funds simply track the market and you may earn a fairly steady rate every year.

3) Over paying taxes. A Roth IRA grows tax-free and a 401 (k) is money taken out of your employment check before taxes. Both are ways to avoid and save money on taxes.

The idea of saving on your taxes may seem a tad obscure, but it really can pay off big. Say a 25-year-old contributes $5,000 each year for 40 years to an investment account, making an average annual return of 8%. If she used a taxable account, she’d have more than one-fourth less money than if she’d gone with the Roth. (Use this calculator to see how far your savings can take you. Enter “0″ in the tax-rate boxes to simulate the tax-exempt status of a Roth IRA.)

4) Going into debt is another big problem and mistake. Eventually, with the right investment moves and job, you will be able to have a fancy car and a big house full of “stuff” but right now, you don’t want to start out your life in debt. Any money you put toward interest is money that you won’t have later and you’re basically just throwing it out the window.

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