In a down market, especially when many investment portfolio values have been slashed by 30 or 40 percent over the course of a year, it’s become painfully apparent that a large part of those losses comes in the form of the fees you pay to invest your money. Over a period of several decades, from first investment to retirement, investment costs can eat up tens and even hundreds of thousands of dollars, destroying the real rate of return of a mutual fund.

For example, an initial investment of $50,000 over a period of 25 years at 8% would grow to $342,423. However, if the gains are 6% annually due to management costs and related fees, that number drops to $214,593 – a difference of $127,830. Even a difference of one percent can be huge over time – in 35 years, receiving 8% annual on $50,000 yields 739,267; compare this to the 533,829 from a 7% return on the same money.

For the average investor, most investment fees fall into one of three categories: mutual fund expenses, investment advisor fees and brokerage commissions, the per-transaction trading fees for buying and selling individual stocks. Mutual funds have some of the highest expenses, with exchange-traded funds (ETFs) usually somewhat lower.

But even ETF fees are not immune to change. According to Richard A. Ferri, CFA at Portfolio Solutions, LLC, “During the 1990s, new issue ETF fees averaged about 0.25%. Over the past few years new issue ETF fees were closer to 0.60% and this year the fee is closer to 0.80%. In addition, some of the more complex ETFs issued a few years ago capped their fees below the stated prospectus level. Those caps are starting to expire and fees are rising.”

Still, since they cost significantly less than mutual funds with high commissions (loads), low-cost index funds and ETFs are the better way for investors to get the same exposure to the financial markets without losing as much of their money in fees, said Ferri.

To maximize your savings and return on investment, Clint Gharib, Vice President of Investments at Turner Wealth Management, LLC, also recommends that you work with an independent, fee-based advisor. “Independent registered advisors provide access to a much wider range of investment products and services with no proprietary products to promote. An investment advisor must act in a fiduciary capacity on behalf of their clients, therefore providing a higher standard of disclosure than in a traditional securities brokerage environment. Because the financial representative gets a flat annual fee based on the amount of assets rather than a commission, transactions themselves do not benefit an advisor,” said Gharib.

Ferri agrees, saying, “Fire that high cost advisor. Advisors’ fees are the last bastion of gluttony in the investment business. They are simply too high. The advisors that charge 1% or more to manage a portfolio insist that they ‘add value’ through their investment selection. There is no academic evidence suggesting that paying high advisor fees provides any benefit over using a low cost advisor. In fact, high fees hurt your bottom line on a dollar for dollar basis.”

Jeff Nabers, CEO of Nabers Group and founder of the IRA Association of America, takes his investment theory a step further than simply trying to lower investment fees for Wall Street portfolios.

“The real cost of investing is poor investment performance due to lack of understanding and awareness that IRAs and 401ks do not have to be invested in Wall Street products,” said Nabers. While investors think they are diversifying by buying a variety of stocks and funds, history shows that when the stock market goes down, all sectors of the market go down. The better option, he explains, is to get off Wall Street and thus actually diversify your investments.

Nabers, who is currently writing a book titled Unlimited Investing with a Self-Directed IRA LLC or Solo 401k: Break Free From Wall Street to Build Real Wealth with Alternative Investments, considers Wall Street somewhat of a casino when it comes to investments. In contrast, there are many other, better ways to invest money for retirement; for example, real estate, precious metals and small businesses.

Real estate prospectors of the past few years who bought based on the hope that their properties would increase in value and they could sell for a profit give real estate investing a bad name. The difference between them and successful real estate investors is in the verb, said Nabers. Profitable real estate investments are the product not of hoping, but of planning. Let’s say you want a minimum 10% annual return on investment (ROI) for your real estate purchase. You would look at properties, from apartment buildings to duplexes to single-family units, and make real calculations of what the properties will earn or cash-flow each year, based on area rents, factoring in taxes, mortgage payments, property management fees and the like.

After analyzing a number of properties, you would know which could provide the ROI you desire and plan your investment accordingly. That’s the difference – planning, not hoping. Stocks used to be the same way, where people bought them based on the dividends they produced and not simply for capital gains.

Investments that qualify for retirement plans are nearly limitless, said Nabers, naming just life insurance, collectibles and self dealing as things that are not allowed. The sooner investors look outside the small box of Wall Street and actually diversify with sound, researched investments, the more they will avoid the high cost of investing found in fees and poor portfolio performance.

Looking for a fresh approach to investing? As an investor, be wise about your money. Avoid high-cost mutual funds and expensive investment advisors, choosing low-fee ETFs and fee-based services instead. On top of that, consider moving some or most of your money off of Wall Street and into carefully researched alternative investments.

In the wake of  lost revenue amid record foreclosures, banking institutions have found a way to mitigate some of their losses – they are raising basic fees and pulling more money from their customers and account holders than ever before. In other words, the online bill pay service that used to cost $10 is now $12, and the service fee for your account recently went up $1 a month.

Maybe an extra dollar or two doesn’t sound like much at first, but increasing an ATM charge from $1 to $2.50 brings in a sizable amount of money when you’re talking about millions of transactions a year. And before you realize it, you – the “consumer” – have paid hundreds of dollars over the course of a year just to access and use your own hard-earned cash.

Some banks, according to NPR earn as much as half their revenue from fees charged to customers. All told, banks made $38.6 billion from service charges in 2007, and even more in 2008. If the trend continues, fees will rise again in 2009.

Hold on to your money. Goodness knows you worked hard enough and paid enough taxes on each dollar you bring home – don’t let them disappear one at a time into the black hole of banking. There are  many ways banks get a dollar here, a dollar there. Be aware of these typical fees and learn how to avoid them – even if it means switching banks.

Overdraft fees are, not surprisingly, a big portion of the service fees charged to consumers by their banks. The typical overdraft costs the consumer nearly $30 according to Bankrate.com just in fees from their own bank. The payee for the check that bounced will often garnish another $10-$20, making this slip rather costly. And no matter if the bad check was just for $5 – the fees are the same.

In fact, the average household with checking accounts spent $368 on non-sufficient funds (NSF) fees in  2008. Those in the higher end – over 20 million households with more than the usual NSF activity – each typically spent an astonishing $1,472 in overdraft fees according to Bretton Woods.

New tiered NSF fee structures will take even more money from consumers in 2009, as banks charge one fee for the first item and a larger amount for the subsequent ones. Thus if a US Bank customer, for example,  bounces three checks in one day, the first will cost $19 and the other two will be charged $35 each.

Regina F., a recently-graduated accounting professional in Virginia, put several hundred dollars in a savings account linked to her checking account to avoid these overdraft fees. But little did she realize, until it had happened several times, that every time the bank pulled money from her savings to make up for a too-large debit against the checking account, the institution charged her $10. Once, the overdraft amount pulled in was only $3, but she still paid the same $10 fee for the occurrence.

Mint Tip: Keep a cushion of $100 that you never touch in your checking account to avoid overdraft fees, or look for a bank that will make those savings-to-checking transfers for free – USAA Federal Savings Bank is one, and others exist.

ATM fees, that $2 or so you pay to get a few $20 bills from an ATM not belonging to your bank, can also add up over the course of a year. Consider too that some banks charge you for taking money out of another bank’s ATM – meaning you effectively pay two ATM fees on one cash-out transaction!

Amy Fontinelle, an Investopedia contributor, has choice words to say about banks charging account holders for what amounts to a loan to the bank, which the bank can than make money from by lending your money to others at higher interest rates.  “In theory, you shouldn’t have to pay your bank money for the privilege of having an account with them,” she writes.

Fontinelle advises avoiding ATM fees by planning ahead. “Get more cash than you need when you visit your own bank’s ATM, or stop by that ATM whenever you’re nearby, even if you don’t need any cash at that moment. Another option is to get an internet checking account that reimburses all ATM fees because internet banks don’t have ATMs, and customers have to get cash somehow. … Using your own bank’s ATM should never cost money, but if they have a monthly limit of transactions, make sure you don’t surpass that number to avoid incurring unnecessary charges.”

Personally, I withdraw enough cash each pay period to last the duration, and occasionally take out extra when doing a debit transaction at grocery store or post office that allows cash back as an option – another way to get cash for free. My bank, which is Internet-based, also reimburses any ATM fees its users incur. I just don’t like to pay those fees on principle.

Never pay monthly maintenance or service fees for your bank account – there are enough free checking and savings options out there that spending an extra $5 or even $20 a month to keep your money in an account shouldn’t even be considered. From local credit unions to Internet banks, options abound. Kick the high-fee account to the curb. The momentary aggravation of changing direct deposits and bill payment information will be well worth the long-term savings.

Make sure your bank doesn’t require a minimum balance, or charge a fee if your savings goes below a certain threshold, when choosing an account. If you pay most of your bills through online bill paying, make sure that service is fee-free at your bank. If there is a limit each month, consider opening a second checking account linked to the first and make some of your bill payments out of the second one.

Bottom line: structure your habits to avoid high banking fees. If your bank doesn’t make the grade, shop around for a bank with lower fees and more services.

What was your worst bank-fee experience? How do you avoid bank fees? Share your thoughts in the comments section, below.

It wasn’t until he graduated college in May 2008 that my friend Ben realized the depth of his student loans: $40,000 owed upon completion of a liberal arts bachelors degree. Like many students, he didn’t worry too much about the numbers as he signed loan papers at the start of each semester. The debt totals and their corresponding monthly payments, due some time in the future, weren’t overly concerning at the time.

In the past ten years, debt levels for college graduates have more than doubled. In 1993, the average graduating student who had loans owed $9,250. Contrast that to 2004, when the average indebted student carried $19,200 in college loans. While less than 50% of four-year college grads had college debt in 1993, by 2004 that number has increased to 66%.

One of the main factors contributing to this rise is the decrease in public money available for colleges in the wake of the financial crisis. As state and local budgets tighten, colleges and universities often lose a portion of their funding, and this shortfall is passed on to students, who with their parents must bridge the gap with larger and larger loans.

Ben is not alone when it comes to higher-than-average college debt. At private non-profit colleges, like the one Ben attended, over 73% of graduating seniors carry student loans. Of those, a full 10% have loans in excess of $40,000. These high levels of debt are problematic for those entering the workforce and beginning their careers. Instead of being able to save money and invest enough for their future, let alone save for their own children’s educations, they are spending hundreds of dollars each month on loan payments.

Large debts likewise prevent college graduates from furthering their education. More than 40% of college grads who choose not to pursue a Master’s degree or doctorate cite college debt levels as a primary reason. Faced with tens of thousands of dollars in debt, many decide that enough is enough.

Rising student debt has a hidden cost to society: talented graduates forgoing good but lesser-paying jobs, in order to make enough to pay back what they owe. Faced with large monthly debt payments, Ben decided to work as a salesman where he’d make more money than in the other positions he considered-and even preferred.

“Student debt has a major impact on what careers young people choose. Large college loan payments discourage students from rewarding, albeit low-paying, sectors such as teaching or public service, that they would otherwise consider,”  said Edie Irons, communications director at the Project on Student Debt.

In 2002, a full 54% of former students reported that they would have borrowed less money for college if they had it to do over again. While it is little consolation to those already deeply in debt, students starting their college careers can find ways to limit their student debt loads as much as possible. Irons does not see debt-free college as realistic for most average American families, but believes the average amount of debt should and can be less than it is. To that end, it’s important that prospective college students seek as much grant money and private scholarships as possible, before relying solely on loans that need to be repaid.

Students should meet with financial aid officers and career development personnel to get a realistic view of how much debt they will incur while attaining their degrees, and how much they will likely earn when beginning their chosen professions. An accurate projection of their financial picture upon graduation can help students make better financial decisions while in school. Financial counseling for students needs overall improvement, as scores of students leave their alma mater with credit card balances and expensive car loans in addition to education debt.

In an effort to ensure that student loans don’t hurt more than they help, the Project on Student Debt works to identify and develop solutions for those burdened with unmanageable college debt. Income-Based Repayment is one of these.

Under a new federal loan repayment plan based on a model developed by the Project, students with federal loans are guaranteed  that their monthly student loan payments won’t exceed a certain percentage of their income (15% of discretionary income, which is classified as everything over 150% of the federal poverty level). This legislation, signed into law a year ago, takes effect  in July 2009 and applies to all federal student loans, past or present.

“Income-based repayment is important because it provides a guarantee that if a student makes a bad calculation and borrows more than he’s able to afford, there’s a reasonable safety net. It’s not a free pass. They still owe the money and have to pay it back, but this makes it affordable,” said Irons.

Loan forgiveness programs for those working in the public sector or for charitable non-profits are also underway. Ten years of qualified employment as well as loan payments are required for an applicant’s remaining debt to be erased. Irons believes that this incentive will encourage more jobs in fields such as teaching, law enforcement and state and local governing.

While many students and former students will benefit from the new legislation, Ben won’t be one of them. His student debt is primarily private loans through his college, and the legislation applies only to federal student loans. A full 80% of student loans are from government sources, and private college loans makes up the other 20%. For students with private debt, benefits such as loan deferment and forbearance are not guaranteed by the government. Their interest rates are also usually higher, translating into larger payments.

For Ben, the reality of a $40,000 debt has just begun to sink in.

Credit cards are hailed as convenient tools, a way to build credit and earn points or rebates. However, there is another side to credit card spending, experienced by many who pay less then their balance month after month and one that can lead to a downward spiral that is difficult to rebound from.

Generations X and Y, those aged from 14-42 are being hit the hardest. Unlike their Baby Boomer parents, they are more likely to start off their working careers already in debt. While student loans and other education related debt make up a great chunk of that for many, credit card debt is also quite high and on the rise for young people-some high-school students even have their own credit cards, something unheard of a generation ago.

So with all that money going to iPhones, PSPs, and the latest designer duds, is this generation just plain spoiled? Not so fast grandpa. Many in this generation are broke-or close to it-but the blame came be placed squarely on starting out in debt and having to struggle with high-interest rates, not on extravagant living.

According to personal finance counselor Sophia Jackson, credit card debt is an epidemic among the under-30 crowd. College students average $2,200 in balances on their plastic, says Bankrate.com. Graduate students have more than double that amount, and high interest rates translate into hefty monthly payments and long-term balances for many.

The bottom line is that most teens and young adults just don’t have the life experience needed to comprehend the implications of paying back their loans or debts when they take them on. And let’s get real for a minute, how can a 19-year-old student be expected to grok the reality of paying back thousands of dollars in college expenses when he’s buying books, food and clothes, excited about the upcoming semester, sports and college life? The numbers don’t have much basis in reality, and it’s a natural assumption to think you’ll be able to pay off the balances as soon as you graduate and land a high-paying job. Combine this with the fact that college teaches you nothing about personal finance and you’re facing a financial mess right at the start of your adult life.

Many will pay minimum payments on their loans for years, either not realizing how much is going to interest just to service the debt or simply not having anything extra to throw at the principal. With young credit, new credit or no credit, interest rates are often in the high double digits, lowering the chance of fast repayment.

Ironically, low credit scores from high debt-to-income ratios, high credit card balances and missed or late payments can affect your job and income potential. Many employers do routine credit screenings and background checks on applicants; security clearances are also in jeopardy for those with bad credit.

A weak economy further impacts your ability to repay loans. When high-paying jobs are scarce, many find themselves jobless for short periods or working lower-paying jobs than they expected. Without lifetime savings or investments, the younger generation falls into the trap of adding on more credit card debt or, at best, is only able to pay minimums on current debt and not get ahead of their bills.

Sounds pretty grim. But there is hope. The best solution is for Generation X to avoid new debt and pay off old debt as aggressively as possible, and for Generation Y to avoid the debt trap at all costs. It would be wise to put off credit card use at least until entering the workforce and becoming more familiar with personal finance, basic budgeting and personal accounting.

The young who are able to invest for retirement, rather than simply service their debts, will be in the best position for financial success. Invest what you can now, even as little as $100 a month will likely return huge dividends when you retire.

A basic understanding of personal finance, debt management, budget management and accounting will go a long way toward helping you avoid the debt trap. Learn how to manage your money and you may even leave a legacy for those generations to come.

Mint Tip: Pay your credit cards in full each month:
The average American carries $8,500 in credit card debt. At a minimum payment of $100/mo, it takes 6.7 years, and $4,257 in finance charges before you’re in the clear.

Tip 1: Diversify your income sources

In addition to increasing your income, diversification can ensure that if one source of money dries up, you haven’t lost everything. Losing your job won’t mean the end of your income, and you will be in a position to ramp up one of the other sources to replace the lost salary. Continue with your primary job while moonlighting as a consultant or freelancer, or start a side business you can do in the evenings or over the weekends. Do something that comes naturally and you are good at. Ideally, try to make extra money doing something you enjoy.

Tip 2: Develop passive income streams

Even as you diversify your income sources, you’ll realize that there are only so many hours in the day. The beauty of passive, semi-passive and residual income is that these streams continue to generate money even while you are occupied at your regular job, meaning that you can increase your income exponentially without being limited to how much you can actively accomplish during working hours. Real-estate rentals, websites with affiliate links, information products, business interests, and royalties from published books, software programs, recorded music and photography are all somewhat passive sources of income, involving little to no active work as they keep generating money. You can also convert a secondary income source — say, a weekend ice-cream stand — into passive income by turning over the management and daily work to a trusted employee.

Tip 3: Pay yourself first

Make saving money a priority, and set aside a percentage of your income as savings. Take this out of your paychecks or profits each month before you pay the bills. Budget to ensure you’ll have enough to cover all your expenses, and increase your savings every time your income increases.

Tip 4: Avoid debt and high interest rates

Huge credit card balances and car loans are two of the biggest pitfalls on the way to wealth. A credit card balance of $7,000 at 18% interest will take four years to pay off with monthly payments of $205. Now imagine how much sooner you could meet your saving and investment goals with an extra $200 a month. If you haven’t fallen into the trap yet, avoid unnecessary debt and high interest rates. Put your money to work for you, not the banks.

Tip 5: Live like a millionaire

The Millionaire Next Door, that is. Mimic the frugal habits of self-made millionaires if you wish to join their ranks. They spend less than what they earn, research large purchases, avoid debt and pay cash for their vehicles. The very wealthy tend not to have especially expensive taste. Read The Millionaire Mind to learn how millionaires really live — you might be surprised.

Tip 6: Invest wisely and regularly

Don’t invest in things you don’t understand, and make sure you diversify your investments to minimize your risk. Set up automatic investment contributions, and participate in any employer-matching plans available to you. Structure your investments for your targeted retirement date, becoming more conservative and less aggressive in your portfolio as you come closer to relying on your investment earnings for living expenses.

Tip 7: Stay married

Divorce is one of the leading destroyers of wealth in American families. The cost of divorce, legal counsel, child support and alimony add up to severely limit your ability to save money and grow wealth. In addition, virtually all self-made millionaires have been married once and stayed married to the same person. This stability allows you to create more wealth and hold on to your earnings as a couple.

Tip 8: Track your finances

A written budget, whether it’s in your notebook or online at Mint.com, keeps you on track and gives you a visual representation of your overall financial picture. Keep track of your savings, investments and earnings and compare them to your goals. Go over your finances regularly, with weekly and monthly check-ins to stay on track.

Tip 9: Borrow carefully

Look for the lowest interest rates available, and only take out loans that make sense for your financial situation. For some people, this will mean never borrowing money and saving up for an education, house or vehicle. Others are comfortable with low-interest loans that free up their resources to make more money than the loan costs. For example, with peer-to-peer lending, you can potentially bring your interest rates down to almost nothing, and then reinvest that money at higher interest rates. Evaluate the true cost of any new debt you take on. Be especially wary of taking out larger loans than you truly need, as paying them back can be harder than you think.

Early retirement or the opportunity to pursue your dream job? The choice is yours. Follow these easy tips and pretty soon the millionaire might not just be next door, he or she might just be living in your house.

What’s the best money tip you’ve received? Share it with our readers, below.

As a teenager, I became a much better driver after my only car accident, in which I crashed into an oncoming vehicle and both were totaled. I was a much more aware motorist, and certainly drove more carefully, after this event. Mistakes can be the best teachers, as the lessons learned are ingrained by the outcome of our failures. Finances are the same way. You can avoid making bad financial mistakes (that could land you in the poor house) by learning what not to do. Here are ten of the biggest financial mistakes people make that you can avoid.

1. Spending more than you earn

Whether you make $20,000 a year or have another zero on the end, your spending habits are the single biggest influence on your financial success or, conversely, your failure. Avoid the poor house by spending wisely and keeping your expenses in line with your income. Ideally, save and invest a percentage of each paycheck or income source you have. And don’t spend money on a credit card that you can’t pay off when the bill arrives.

2. Wasting money frivolously

Spending money wastefully, even if you do spend less than what you earn, is another bad money idea. Even if you think you can afford the payments, buying a new car every two years just doesn’t make fiscal sense for most people. Ironically, most first-generation millionaires buy slightly used vehicles or drive their new ones for many years instead of frequently buying expensive, depreciating vehicles. The problem with wasting money is that you have less for saving and investing.

3. Not having a financial plan

Eschewing a financial plan, and not setting goals can set you up for financial problems. Success in any area is largely dependent on having a written plan, short-term and long-term goals, and by working that plan. Reevaluate your plan and track your progress often using whatever method best suits you, whether it’s through online software or in longhand in a notebook. Discuss money with your spouse or partner, meeting regularly to go over the budget and common financial goals.

4. No insurance or the wrong type

Allowing yourself and your assets to be exposed to damage, injury or lawsuits without proper coverage is another way to lose everything you’ve worked to obtain. Health insurance protects you in case of physical injury and high medical bills, and an umbrella policy over your house, auto and other policies protects you from lawsuit judgments.

5. Investing in get-rich-quick schemes

Putting your money in investment vehicles you don’t understand or buying those get-rich-quick packages will put you on the fast track to the poor house. Your best bet for avoiding all of that is to invest in things you understand and regularly adding to and diversifying your holdings. Don’t waste your money on online courses and packages that promise to teach you how to earn six figures online. Do the research before you spend the money. Investing in mutual funds is a great way to start.

6. Taking on too much debt

How much is too much debt? Some financially-savvy advisors say any debt is too much, including Dave Ramsey, who became a millionaire and then lost everything because he relied too heavily on debt in his personal life and for business finances. Others are comfortable with small amounts of debt, or house mortgages and auto loans. But realize that even student loans can be hard to handle if money is tight. If you do acquire new debt, do so cautiously and after researching the best loan options.

7. Not expecting the unexpected

Life happens, and if you don’t have any emergency savings, life insurance on yourself and your spouse and contingency plans for potential income loss, you’re setting yourself up for financial trouble. Plan to save three to six months’ expenses in easy-to-access savings accounts as a starting goal for a rainy day, whenever it happens.

8. Working the minimum

Whether you’re just doing the bare minimum at your job or only making enough money to scrape by, working the absolute smallest number of hours you can get away with or completing only the essential tasks, you’re putting your career in jeopardy. To get ahead at work or in your business, give your work the time and attention it deserves. After all, your ability to make income is likely the biggest financial asset you have.

9. Counting on Social Security funds

If your retirement plan is entitlement benefits, it’s past time to reevaluate that plan. Social Security is on shaky ground, and the sensible approach is to discount it entirely when planning for your future. That way, if anything does come through, it’s just icing on the cake in retirement.

10. Putting money above family

While most people tend toward not doing enough for their financial success, there are those at the opposite end of the spectrum whose priorities have been warped until money takes the highest place in their lives. Take the time to evaluate your life and the place money has in it. Money is simply a means, a tool, and should never be sought as the end in itself.

Just Say ‘No!’

It is not just a cheesy anti-drugs campaign. Saying ‘No!’ should be a regular expression for someone trying to stay in the black. Anytime you’re presented with a reason to spend, be it for just a large sized fries at lunch, additional coverage, or buying two to get the third free, alarms should sound and you need to ask why you’re forking over that extra dough. Don’t let it just apply to things you add on to a bill. Just say ‘No!’ to everything that forces you to open your wallet, then take a good hard look and decide if it’s worth your hard earned money.

What financial mistakes have you made? Which ones have you been able to avoid?