(MONEY Magazine) – In many ways, Tina Johnson is off to an impressive start as an investor. Since she began working six years ago, the 31-year-old chemical engineer has stashed away the maximum in her 401(k) and has seen her account grow to a hefty $127,500. She's bought a $65,000 Houston townhouse and joined a stock investing club. "I really want to learn more about investing," says Johnson, who is single and earns nearly $100,000 a year. "My goal is to be in a solid financial position by the time I'm 35."

Standing in the way of that goal, however, are a handful of beginner mistakes that have opened her up to more risk than she realizes. For starters, her 401(k) holds an unwieldy collection of 15 mutual funds, plus too many shares in her employer, oil giant BP. Further complicating her finances is a daunting $35,000 in credit-card debt, which ballooned during college and her first working years and now threatens to hold her back.

Johnson understands the importance of spreading her 401(k) among different kinds of investments to reduce risk. But she has confused multiplication with diversification. With 15 mutual funds plus company stock, her 401(k) is difficult to manage. Moreover, she hasn't really reduced her risk as much as she thinks because many of her funds hold similar investments. For example, she owns four funds that invest in small-cap stocks as well as a midcap fund that has 20% of its assets in small-caps.

Johnson hurts herself even more by continually chasing performance. She's been switching her monthly contributions from fund to fund based on recent returns, a market-timing strategy that usually fails as top performers seldom stay on top for long. And her overall asset mix is aggressive, with some 90% in stocks. "I don't mind taking risks," she says, "since I have lots of time."

But her biggest error has been ignoring her hefty credit-card balance. A year ago she took out a $17,000 401(k) loan to help pay down her then $62,000 debt. Since that time, though, she has made mostly minimum payments. All told, some 40% of her take-home pay goes to paying off debts, including her mortgage and student loans. Fortunately, she's managed not to run up further debt. "My income finally caught up with my taste," she says jokingly. Still, she plans to lease a $40,000 BMW this fall. "It's a done deal," she says. "I've been waiting for this."

For Johnson, managing cash flow is even more important than managing investments, say David Diesslin and Kathy Moore, financial advisers with Diesslin & Associates in Fort Worth. The planners praise her saving discipline but warn that she's at a critical point financially. "Tina's in a great position to be in control of her finances in a few years," notes Moore. "But in addition to streamlining her 401(k), she has to change her spending patterns and focus on her debt or she will not build net worth." In other words, the BMW had better wait for now.

Revamping the 401(k) is the simplest task. Since the account represents the bulk of her net worth, the planners recommend toning down her aggressive asset mix to a more conservative allocation: just 70% in stocks, plus 15% in bonds and stakes in real estate and convertibles. To cut down on overlapping investments, Johnson should trim her funds from 15 to the seven in the table below. Each of these funds is quite different from the others, so she'll actually wind up more diversified than she is now. Then she should direct her contributions into all seven, based on her desired asset allocation, and rebalance just once a year.

As for Johnson's stake in company stock, an 11% allocation is too risky (if BP runs into trouble, she could lose her job and her investment). "The maximum share of their portfolio anyone should have in their employer's stock is about 10%," says Diesslin. "When starting out, it's best to keep the position smaller to leave room to grow." His advice: no more than 7% of her 401(k) in BP.

Eliminating Johnson's credit-card debt, though challenging, is achievable. The key is carving out cash from her budget to pay it down. The planners recommend she reduce her 401(k) contribution from 13% of her salary to 7%, which is still enough to qualify for a full company match. "Given that the rates on her debt are as high as 15%, it makes sense to pay that down now rather than invest," Diesslin says. She can free up a couple thousand dollars a year by swapping her $200-a-month universal life policy, purchased as protection for her siblings, for less costly term insurance. Dropping her investing club will save another $150 a month. Finally, Johnson can devote some or all of her annual bonuses--typically 10% to 15% of her salary--to card payments. With such moves, she can wipe out her debt in as little as three years. At that point she can hike her 401(k) contributions back up to the max. And perhaps take a seat in her new BMW.