Follow this routine and you’ll be well on your way to getting your finances in shape.

Plan your path to prosperity and you’re halfway there. Truly. But there are some enormous potholes to dodge if you’re to arrive at that oh-so-desirable destination.

1. Letting time-poor mean a poor time

You will be able to save on every bill and every premium – unless you signed up for the product yesterday. Companies rely on us to be too busy to chase the best deal … but they’ll happily offer a new customer far better terms. Even if you just get a better rate on your mortgage, you’ll secure in a couple of days what it would take the average Australian a year to earn. Move a $300,000 loan from the average to the best deal to keep $56,000 in interest.

2. Using credit to spend more than you earn

This short-sighted behaviour probably has the greatest potential to sabotage your future. To be a financial success, you don’t need to be particularly clued up, but you can’t be clueless, either.

3. Having no emergency fund

You should have an emergency stash of three months’ salary, or – safer still – six months. This will give you a buffer if there’s an unexpected cost impost, or half a year’s grace before you get worried about a fall in income.

4. Not teaming up

There’s no point doing your utmost to make savings if your spouse or partner increases their consumption to absorb the extra cash. The pursuit of prosperity needs to be a partnership.

5. Falling for ‘generous’ banking offers

The banks set traps left, right and centre to try to get you paying more. A ”thoughtful offer” to reduce your repayments if you are ahead on your mortgage is designed to recoup the lender’s lost interest. An enticing introductory or honeymoon rate will come with a sky-high revert rate. Ever-so-reasonable minimum monthly repayments on your credit card may well keep you in debt and paying interest forever.

6. Making matters worse with debt consolidation

Consolidating your debts – rolling all your debts into your lower-interest mortgage – has become almost a mantra when it comes to debt reduction. But let’s say you have personal debt of $9000 at a rate of 12 per cent. If you stayed the course, you would end up paying $1777 in interest. Extend your home loan, though, and you would ultimately pay an enormous $11,840 in interest. Instead of paying off the loan more quickly at a higher rate, you will pay it off at a lower rate over 25 years. You need to maintain your payments at the level required by a personal loan for debt consolidation to work for, not against, you.

7. Indulging in ‘retail therapy’

Like eating, there are often psychological reasons behind excessive shopping. If you can recognise any personal factors that drive you to flash the plastic, you are far more likely to be able to stop doing it. Far better to address the issue that necessitates the therapy than opt for the expensive and temporary Band-Aid that is shopping.

8. Failing to think defensively

Smart money management is not simply about building wealth but protecting what you’ve already amassed. What would become of your family if – perish the thought – you died? Life insurance is vital to cover debts, living expenses and more. Also, bear in mind that your ability to earn money is actually your most valuable asset, so income-protection insurance is a must, too.

9. Buying a car with credit

This is among the worst uses of ”very bloody bad debt” – my term for non-mortgage, non-tax-effective debt. A car is a depreciating asset – if you buy a $20,000 vehicle with a three-year personal loan at 12 per cent interest and the car loses 12 per cent in value in each of those years, you will have forked out $23,914 by the time you have paid it off but the car will be worth only $14,069. And the total cost/residual value situation is even worse if you use very bloody bad debt to fund a holiday – all you’ll have to show for your debt is photos.

10. Believing the hot tip

We all want to believe there is a short cut to building wealth. And if you get in just before a boom, you certainly can make a lot of money quickly (assuming, that is, that you sell before any bust). But ordinarily, wealth accumulation is a slow, steady process. The easiest way to recognise either a dodgy financial product or a higher-risk financial scheme is a headline rate of return above what you can get from an online savings account. If it seems too good to be true, it is probably a scam.

This is an edited extract from the 12-Step Prosperity Plan to be released exclusively on this month.

Nicole Pedersen-McKinnon is a former Money columnist and ambassador for MoneySmart Week.

Posted by Nicole Pedersen-McKinnon – Money Manager (Fairfax) on 15th September, 2013