9 Financial Mistakes that are Costing You Money

Pinterest Facebook X Reddit LinkedIn Email

Money Mistakes That Lead To Financial Troubles

Let’s take a look at some of the most common financial mistakes.

Knowing that you are making a financial mistake is a simple solution to money problems in the first place.

So, let’s not delay. Here are some of the biggest financial mistakes that people make.

9 Financial Mistakes To Avoid Financial Troubles

Not having a money plan
Spending too much money
Ignoring higher income opportunities
Saving too little
Not creating an emergency fund
Mismanaging debt
Ignoring insurance
Delaying retirement contributions
Not investing

Next, let dig into each of these financial pitfalls. Ignoring them now will be one of the worst financial decisions you can make.

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

1. Not Having A Money Plan

Having a budget is very important. And there are no good reasons for not having a budget. Believe it or not, research shows that most millionaires keep a budget.

So, budgeting is a good practice to get into. Even for millionaires. Also, a budget is sometimes called a personal cash flow statement.

First of all, a budget is a critical part of any money plan. Not having a budget is an example of poor money management.

Your finances do not need to be complicated. And neither does your budget.

A pencil and paper will suffice. A spreadsheet or free online software is okay too.

When preparing your budget, expenses should be no more than income. Look for ways to create excess cash, where income exceeds expenses, by as much as possible.

But, a money plan is more than just a budget. A budget just gives you the information to expand upon your financial planning.

It is a useful tool in setting other financial priorities. And, allows you to make a plan for every extra dollar you can create, over and above your expenses.

Letting money sit idle is another example of poor financial management. So use your budget to:

Identify and reduce unnecessary spending
Find the money to “pay yourself first”
Eliminate all consumer debt
Maximize contributions to retirement accounts
Invest any other excess cash (if you are lucky enough to have some)

Resource: The best free tool to create your money plan

Let’s talk about spending and expenses next. Since we all have to spend money.

But, spending too much. Or spending on the wrong things is a big financial mistake.

2. Spending Too Much Money

Let’s focus on the big spend areas. They impact all of us. And they are the areas where we can make the most progress with our spending.

So, make a money goal to spend less money. And, live within your means. Here’s what you should know…

Financial Mistakes: High Transportation Costs

First of all, it’s a known fact that a new vehicle depreciates significantly as soon as you pull it off the dealer’s lot. So, buy a used car or SUV. And, let someone else incur those depreciation costs.

Furthermore, buy an efficient, reliable vehicle that will get you from point A to point B. Avoid the high-cost of a luxury automobile. Buying a high-cost vehicle can lead to financial troubles.

Finally, buying your next vehicle before you need it is one of the common mistakes in people’s financial plans. So, hold on to your current auto as long as you can.

Financial Mistakes: Buying Too Much Home

Buying a larger house than you need is a financial mistake. In my experience, houses are money pits. The costs for repairs, maintenance, renovations, and furnishings all add up fast.

So, be sure to consider all of the advantages and disadvantages before moving. You will be glad you did.

First of all, the bigger the house and the pricier a neighborhood is, the more you will spend. Furthermore, housing costs tend to be one of the largest family expenses.

So, if moving is an option, consider a lower-cost home. Either downsize your square footage. Or, find a less expensive location to live, or both.

Financial Mistakes: Mismanaging Other Expenses

Go back and look at your budget. You know. The one you created as part of your new money plan from point #1.

After housing and transportation, food is probably the 3^rd biggest expense. Then comes all of your other bills.

For spending, this is the last of 3 areas of money mistakes to avoid. So, here is my best advice.

Spend on what you need. And spend on want you value. Then reduce or eliminate the rest.

Use your budget as a guide. Remember, your budget is the centerpiece of your new money plan.

And you must have a plan for your money. Or else, you are making one of the biggest financial mistakes.

Resource: Save on all of your online purchases (plus a cash bonus for a limited time)

That covers spending. But not considering ways to increase your income is another common financial pitfall.

3. Ignoring Higher Income Opportunities

Your short-term and long-term financial goals should include increasing income. So, don’t ignore the possibilities of making more money. And this comes down to 2 things.

First, get paid more for what you already do. Second, do something additional for more income.

Ask your employer for a raise. If the answer is no, ask what you need to do to get one.

How does your performance have to improve? What additional responsibilities do you need to take on?

But you say, your current employer won’t budge? Then look for a new employer that will.

Make sure you are getting paid what you are worth for your skills. Sometimes changing employers is the quickest way to make more money. So make the best resume. And go for it.

Resource: Best tool for building the perfect resume

Whatever you decide to do with your job or career, think about this. Figure out what you are good at. Then, be great at it.

Finally, consider a side hustle to make some extra money. The list of potential side hustles is endless these days.

The internet has become a matchmaker for buyers and sellers. Do you have goods or services to sell? Then the internet can help you find those people willing to pay for them.

Resource: Make some fast extra cash taking surveys (it’s fun too)

We’ve talked about a money plan. Then spending less and making more. Now what?

That’s easy. Save more money.

4. Saving Too Little

Not saving money is a financial mistake. It will most certainly lead to money management problems.

So, learn to pay yourself first. Carve out at least 10% of your income and save that money every month starting in your 20s if you can. Then, as your income increases, save a greater percentage of it.

Spending everything you make, or more is a money mistake to avoid. So is not saving more money as you make more money. Don’t get into these bad habits when managing your money.

Now, what do you do with that extra savings? The answer is: create an emergency fund. Because not having one is a big money mistake.

5. Not Creating An Emergency Fund

Accidents happen. So, most financial planners suggest having an emergency fund.

Keep 3-6 months of living expenses on hand in cash. Put the cash in a high-interest savings account.

The money will be there for you in case of an unexpected job loss. Or, and unexpected expense. An emergency fund can help you head off money problems before they get started.

So don’t make this financial mistake. By not having an emergency fund.

But wait there’s more. The biggest 4 letter word when it comes to money problems is DEBT!

6. Mismanaging Debt

Debt is often at the root of financial troubles. Having too much debt or the wrong kind of debt makes it difficult recovering from financial mistakes.

Here are several ways that debt leads to money problems and financial troubles. But, it doesn’t have to, if you manage debt in the right ways.

Money Mistakes: Financing Purchases Rather Than Saving For Them

Ideally, there is only one type of debt to carry. And that is mortgage debt.

Okay, maybe a car loan and student loans. But, can you see how fast debt adds up when making exceptions like these?

Pretty soon you are servicing all that debt and need more debt to fund everyday living expenses. So, avoid this common money problem.

Do your best to save for purchases before making them. Remember, saving too little was financial mistake #4.

Money Mistakes: Carrying Balances On Your Credit Cards

Getting into credit card debt is a financial pitfall to avoid. And, credit card debt is the worst kind of debt.

It is typically debt on consumer purchases. And is unlike debt on your home, car, or education. Because consumer goods carry little value.

Also, credit card companies charge some of the highest interest rates around. There is no denying it. Credit card debt will cause financial problems.

Money Mistakes: Letting Your Debt Go To Collections Will Create Financial Troubles

Just like paying your bills late, letting debt go to collections is one of the biggest financial mistakes to avoid. It’s best to stay out of debt in the first place.

But, if you have debt, pay the balances due on time. Otherwise, your credit score will get hammered.

Resource: Check your credit score for free

Can’t make a payment? Then be proactive.

Call whoever it is you own money to. And try to work out a payment plan that you can handle.

Refinance your mortgage. Or consolidate your debt into something more manageable.

Money Mistakes: Being A Cosigner On Someone Else’s Debt

Finally, becoming a consigner on a loan can be one of the worst financial mistakes you can make. If the person who takes out the loan can’t pay it off, you are legally on the hook for it.

Before cosigning on a loan, ask yourself what would happen. What would happen if you become responsible for paying off that debt?

7. Ignoring Insurance

A major accident can cripple your finances. Whether that accident is health-related or property related.

Not carrying the right insurance in the proper amount is a huge financial risk. It is a financial mistake that must be avoided.

On the other hand, remember not to over-insure. Insurance agents love to sell insurance. So be smart about it.

Here is a simple rule of thumb. Insure only what you can’t afford to lose.

That means having enough insurance on big-ticket items. Like your vehicles and homes. Also, your life insurance, if others are financially dependent on you.

Also, not carrying medical insurance is a money mistake to avoid. Health care services can be very expensive. And sink your financial ship very fast.

So, avoid this poor money management error. Carry the right amount of insurance.

Then bid out your insurance every year or two. This way you are more likely to get a lower rate. Because most insurance companies will increase their rates for home, auto, and health insurance each year.

That covers the most common money mistakes related to insurance.

Next up, your money plan must consider retirement. Also, investing. They go hand in hand.

8. Delaying Retirement Contributions

We can’t work forever. Age will catch up to all of us. So retirement planning should be part of your long-term financial goals. Because longer retirements are becoming the norm these days.

Retirement is supposed to be one of the best times of life. But, if you are not financially prepared, retirement can also be a source of financial troubles.

At some point, you may need to live off investments. So, here are a few areas to consider. When looking to maximize your retirement contributions.

Not Contributing To Your Employer-Sponsored Plan Is A Financial Mistake

Not participating in your employer-sponsored retirement plan is a big financial mistake to avoid. Most employers sponsor qualified retirement accounts. They are also known as 401(k) or 403(b) plans in the U.S.

These plans offer several advantages. First of all, your money can be invested before any taxes are taken out.

Furthermore, your money grows without being taxed. Until you take withdrawals in retirement.

These advantages put more of your money to work each year. Since you do not have to pay taxes on your earned income, your investment gains, or dividend income.

Finally, most companies will contribute to your retirement account. It is called a company match.

So, make sure you participate at the minimum level in your employer’s plan to maximize the match. This is part of your compensation package. Don’t waste it. Doing so is a money mistake.

And another retirement planning and savings option. An IRA…

Open and Fund An IRA Account

In case you do not have a company-sponsored plan. There are other retirement plan options available too.

You can open and fund an IRA. There are two types of IRAs.

First of all, there is a tax-deductible IRA. This type of IRA works similarly to your company’s retirement plan. Specifically, contributions are made pre-tax.

Then, there is a Roth IRA. In the case of a Roth, your contributions are made after-tax. But you never have to pay another penny of tax even when you take withdrawals in retirement.

In both cases, your money grows without being taxed during your pre-retirement years. And with a Roth, there is no tax liability when you start making withdrawals for retirement.

9. Not Investing

Some folks let investing intimidate them. So, they never get started.

I understand. Investing can seem complicated.

There are so many options. Stocks, income investments, real estate, etc.

Don’t be intimidated. Not investing is another example of a bad financial decision. It is important to invest in your future.

Investing doesn’t have to be complicated. Start by investing in a retirement account. Then look for other investment options when cash permits.

Not becoming an investor at a young age is one of the financial mistakes to avoid in your 20s. Put time on your side and start investing early and often.

Investing should be part of your money plan. And, down the road, you will be glad you made it so. Having smart investments will solve a lot of potential money problems in the future. When you are a little older.

Resource: Invest for free (and for a limited time get free stock)

Let’s wrap up with a summary…

9 Financial Mistakes To Avoid

You can take action with your finances in these areas when many people do not. So, get busy eliminating these common financial mistakes from your life.

Here is a summary list of the 9 financial mistakes to avoid. And money mishaps you want to watch out for:

Not having a money plan
Spending too much money
Ignoring higher income opportunities
Saving too little
Not creating an emergency fund
Mismanaging debt
Ignoring insurance
Delaying retirement contributions
Not investing

Focus on these types of financial problems. They represent some of the biggest money mistakes.

Do so and most, if not all, of your money problems, will be solved.

No Financial Mistakes Here: My Favorite Money Resources

Promise Me You Won’t Make These Financial Mistakes!