7 Top Financial Mistakes and How to Avoid Them

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Everyone makes mistakes from time to time. That’s how we all learn. If you keep making the same mistakes time and time again when it comes to your money, that’s when it becomes a real problem.

Learning how to avoid the top money mistakes can help save you financial anguish and frustration and position you for a sound financial future.

1. Spending More Than You Make

There’s nothing wrong with splurging every once in a while, but you should definitely be spending less money than you make. If you never stop living beyond your means, you’ll never be able to save up much money and improve your financial wealth.

If you are living in a house that you can’t really afford or making high monthly payments on a new car, you need to reconsider those expenses.

To make sure you spend less money than you earn, I highly recommend creating and following a budget. It will really help you to get a better handle on your income and expenses and see how much you’re really spending. You’ll be able to work on reducing expenses and increasing your savings.

Making a budget is really not that hard, and pretty much anyone can do it. When done right, making a budget is a great way to take control of your finances and help you to reach financial goals. Check out my 7 Steps to Create a Personal Budget blog post, which outlines the following steps:

Step 1: Collect Your Financial Paperwork
Step 2: Determine Your Monthly Income
Step 3: Calculate Your Monthly Expenses
Step 4: Set Your Financial Goals
Step 5: Make Your Budget Plan
Step 6: Adjust Your Spending Habits
Step 7: Review Your Budget

There are many online budgeting applications that can help. One of the most customizable digital budgeting tools available is PocketSmith. They have an app that can help you with planning and tracking your budget. Use my link if you’d like to save 50% off your first two months of their premium plan.

If you prefer a tried-and-true, non-digital method of tracking your budget, check out this best-selling budget planner that comes in so many different colors to choose from: Clever Fox Budget Planner

2. Spending Too Much Money on Things You Don’t Need

Spending money every month on things like dining out, new clothes, going to the movies, and pricey vacations can really add up. Spending household dollars on too much “fun” instead of saving can wreak havoc on your budget.

You might need to make a shift in your money mindset to help spend less money on frivolous things. Doing well with money is very much influenced by how you behave, and behavior is not always easy to teach.

Your behavior and views on money are developed from your personal experiences over many years. Things like how your parents handled money, your views of the world, your pride, and your education can all have an impact.

To help shift your mindset, it may help you really think about your future money goals. If there is a house you’re wanting to buy, for example, shifting your money mindset to make that a priority could help you to reconsider where you’re spending your hard-earned dollars.

It may also help to check out some financial-related books to help your with your money management. The following books are excellent resources:

The Total Money Makeover by Dave Ramsey
Think and Grow Rich by Napoleon Hill
The Psychology of Money by Morgan Housel

3. Not Saving Enough Money

Many people save money in this order when they get their paycheck: pay bills, buy groceries and essentials, buy discretionary items, and then save the rest.

To build a lasting habit that will help to boost your financial wealth, you need to save money first, pay your bills, and then spend the rest. You don’t have to go all-in right away, either. If you aren’t really saving any money right now, start with a small amount and build from there.

My money saving challenge would be a great way for you to start small. If you don’t have an emergency fund saved up, I would also recommend reading my How to Save $1,000 in for an Emergency Fund in 90 Days blog post.

4. Putting Off Financial Planning

A financial plan can help give you an overall view of your financial situation. A good financial plan should include specifics about your income, expenses, debt, and goals.

Financial planning can be overwhelming for beginners, but it doesn’t have to be. You can create a financial plan or your own or with the help of a financial planning professional.

If you choose to create one yourself, the steps listed in my 6 Steps to Financial Planning for Beginners blog post will help to get you on the right path. In this post, I recommend several steps for creating a sound financial plan.

One of the most important money steps recommended for a sound financial plan is to set financial goals. Planning your goals will help to make saving money feel more intentional and purposeful. What do you want your life to look like 5, 10, and 15 years from now and so on? Make a list of short-term and long-term financial goals that you would like to achieve. Short-term goals could include things like reducing credit card debt, buying a new car, planning a vacation, or buying a new computer. Long-term goals, like saving for retirement or your child’s education, could take years to achieve.

Identifying goals will help you identify your priorities and things that are important to you. If you set intentional and achievable goals, it will inspire you to stay on track with a plan to improve your financial wealth.

5. Postponing Saving for Retirement

Retirement might seem like a lifetime away if you’re still in your 20s or 30s, but the sooner you start saving for retirement, the better, thanks to compounding interest over time. Your investments and interest will compound over time to grow faster and faster. To learn more about this, read my How Does Compounding Affect My Investments? blog post.

Starting to invest for retirement can sound more intimidating than it actually is. If you’re not sure where to begin, you might consider reaching out to a financial advisor for guidance. They can help customize an investment plan for you, based on your financial situation and goals.

If your employer offers a 401(k) retirement plan with an employer match, I definitely recommend taking advantage of that. It’s basically free money.

Other options for investing include Individual Retirement Accounts (IRAs), taxable brokerage accounts, and education investment accounts. If you would like to learn more about IRAs, read one of my related blog posts: Why Should I Invest in an IRA? and Which IRA is Right for Me – Traditional or Roth?

You will also need to choose investments within your investment account that match your risk tolerance. These could include investments like stocks, bonds, mutual funds, and real estate. Some types of investments are riskier, so you will want to carefully match this up with your long-term financial goals.

6. Not Paying Off Credit Card Balances

Mounting credit card balances can make you feel like you are drowning in debt. Purchases you made months ago can haunt your financial situation today.

The worst thing you can do it to only make the minimum payments. Because the interest rates on credit cards are usually so high, you will almost never get a balance paid off by only making the minimum payments.

Creating a budget like I mentioned in the first step above can help you set-up a plan to tackle your credit cards balances. When you create an actual strategy to pay off your credit cards, you can start moving in the right direction.

Check out my 8 Tips to Pay Off Credit Cards Fast blog post to get help with paying off your credit cards.

7. Not Monitoring Your Credit Scores

It’s important to keep an eye on your credit scores, especially if you are going to be needing a loan in the near future. Things like credit fraud, errors, and collection accounts you weren’t aware of can really hurt your credit profile.

If your credit scores are not as high as you’d like, there are ways to bring them up. Depending on your circumstances, there are steps you can take to boost your scores. There isn’t one single magic thing that will improve your scores, but by being strategic and implementing some of the tips listed in my 13 Ways to Improve Credit Scores Fast blog post, your scores are sure to improve.

While you’re working on improving your credit scores, it’s important to keep an eye on your credit profile. If you want to take the free route to do this, every consumer is entitled to a free credit report from each of the three major bureaus each year from AnnualCreditReport.com. You could stagger getting a report from each of the three bureaus so that you review one every 4 months.

While using this site is a great free way to track your credit profile, it doesn’t show you any credit scores. Some credit card companies report a credit score from one of the three bureaus to you each month, if you have an active account with them. If you want to monitor your score more frequently, you could sign up for a paid credit monitoring service, like Credit Karma.

Conclusion

BoYou’ve probably made at least one of the financial mistakes listed above throughout your financial journey, and that’s totally okay. The important thing is that you learn from it and make actionable steps to break any bad money habits and improve your financial situation moving forward.

Check out some of my other posts on saving, making, and investing money:

Disclaimer: This information is intended for educational purposes and is not tailored for the needs of any specific investor. It is important to conduct your own analysis and research before making any investment. It is recommended to independently research and verify or seek financial advice from a professional in connection with any information on this website before using it to make an investment decision or otherwise.