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7. Don't Fall for the "Renting Is a Waste of Money" Fallacy
In some regions of the country, the cost of owning may still be higher than that of renting (to account for total ownership expenses, including property tax and maintenance, my rule of thumb is to add about 30 percent to the base mortgage amount). And while home values may be stabilizing in many parts of the United States, that doesn't mean they're suddenly going to start rising at a fast and furious pace. Over the next five to seven years, you still might not see a home's value appreciate the roughly 8 to 10 percent it would need to simply to cover the costs of relocating (which at the very least include the real estate agent's typical 6 percent commission, as well as movers' fees).

Do the math carefully before you consider buying. Ask yourself: Do you have any inkling that you'll want to move in the next five to seven years, whether for a job, a fresh start or a new experience? If so, purchasing a home is not a smart choice. Keep renting until you can commit to settling down for longer, and tune out everyone who says you're throwing away money.

8. Give Yourself a Reality Check Before Attempting to Recoup a Loss
Our brains do a real number on us when it comes to money. When we buy something, the price we pay becomes a permanent reference point. Psychologists call this "anchoring"—and it can sink you financially. For example, if you invest $1,000 in a stock, and its value drops to $500, you tell yourself, "I'll sell once it's back to $1,000, so I break even." But that doesn't make sense. Your portfolio decisions should be based on an investment's potential going forward. To judge if you're falling victim to an anchoring trap: Look at the stock in your portfolio and ask yourself if you would buy it today. If you answer no, you should consider selling, even at a loss.

9. Avoid Cosigning Loans for Your Kids, Even If They Have Stable Jobs
I am never a big fan of cosigning a loan, because it means you are 100 percent liable for making good on the amount borrowed. Don't do it. This is not about your son or daughter being a flake or freeloader. What if he is laid off? Or is injured in an accident?

But you can still help. If your FICO credit score is at least 740, I would consider adding your child to your credit card as an authorized user. This allows him to piggyback on your score, and it will help him build a solid credit report that will eventually make it possible for him to qualify for a loan on his own.

10. Cut Out Unnecessary Life Insurance
You need life insurance only if there are loved ones who depend on you financially. The question you need to ask is: "If I die today, would everyone be able to pay their bills?" If the answer is no, you need life insurance. And even so, you probably don't need it forever. Once your kids are adults or you have ample savings and home equity to support your family, chances are you can skip it. I recommend term life insurance that provides coverage for 10 or 20 years. Learn more at AccuQuote.com and SelectQuote.com.

11. Invest in Your Children's Future, but Not at the Cost of Yours
A college degree isn't a great investment; an affordable one is. The unemployment rate for Americans 25 years of age and older is a lot lower for college graduates than for those with only a high school diploma (3.8 versus 8.1 percent, as of November 2012). But that doesn't mean you should tell your kids to set their sights on any school—regardless of whether it would leave you with a crushing amount of debt. All too often, parents fail to strategize when it comes to paying for education and end up getting off the track to retiring comfortably. Ironically, this does kids a major disservice: If you lack sufficient retirement savings down the line, your children are the ones who'll bear the burden of supporting you.

A better idea: Think in terms of long-run affordability. (This goes for you and your child, since I firmly believe kids must borrow for school before parents dip into their savings or take out a loan.) Mark Kantrowitz, publisher of FinAid.org, says students should limit their total borrowing to an amount no greater than what they can reasonably expect to earn in their first year of full-time work; borrow more, and the odds of running into payback problems and default soar. Check out typical starting salaries at Salary.com; even if your child doesn't have a specific career in mind yet, it's a great exercise for families to do together, to start getting grounded in postcollege reality.

12. Do This Before Dipping into an Annuity to Pay Off Debt
Earnings drawn from an annuity will be taxed as ordinary income. On top of that, the insurance company that runs your annuity may charge a withdrawal fee; this so-called surrender charge can start as high as 7 percent. If you factor these taxes and fees into your calculation, you'll see that you would need to take out more than what you owe.

Now ask yourself this question: If you were to use up a big chunk of your annuity today, would you have enough to live on throughout what could be a long retirement? My advice is to get a part-time job. You should aim to generate at least $1,000 a month in after-tax income—and put all the money toward paying down your debt.


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