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Are you looking to take control of your finances but don’t know where to start?
With the world so focused on achieving financial success, it can be hard to figure out the right steps forward.
While there’s no one-size-fits-all solution when it comes to money management, there are certain mistakes that can have a detrimental effect on your wallet if you make them.
It’s time for us to cover 29 of these most common money pitfalls and how best to steer clear of them in order to achieve the financial freedom we all strive for!
Table of Contents
#1. Ignoring Side Hustles
If you only rely on your income to survive financially, you are putting yourself at risk. If you lose your job, you will experience a lot of stress until you have a steady paycheck again.
To combat this, many recommend you have multiple streams of income. This way, should you lose your primary source of income, you still have money coming in. And if you don’t lose your job, you have extra money to put towards savings or pay off your debt faster.
But what side hustle should you pick? Figure out the things you like to do and then see if there is a way to earn money.
#2. Letting Pride Get In The Way Of Asking For Help
It can be tempting to think that you need to prove yourself by going it alone, but the reality is that no one has all of the answers, not even financial advisors.
Don’t let your pride stop you from asking for assistance when needed.
Lean on a professional or friend who understands finances when starting out.
It’s better to admit you don’t know and get the help you need than to make a mistake that could cost you in the long run.
#3. Buying the Minimum Insurance
Let’s face it. No one likes to pay insurance premiums. However, the repercussions of not having insurance can often be worse than regular insurance payments.
For example, if you don’t have a health insurance plan and get injured, the out-of-pocket costs can be massive, plunging you into debt in no time.
The same applies if you don’t have insurance for assets like your car. Insurance protects you and your wealth.
Instead of buying the minimum insurance coverage, work to find the policy that fits your needs first. Then you get various insurance quotes to find the lowest-priced option from that list.
This ensures you have the right coverage and are paying the least amount in premiums possible.
#4. Buying an Engagement Ring You Can’t Afford
Many people see an engagement ring as a symbol of their love for another person. And as a result, they want to give them the biggest and best ring money can buy.
This is fine as long as you can afford it. But if you have to go into debt to buy the ring, this is a problem.
Review your income, expenses, and savings, and buy a ring that fits your budget. This will allow you to continue to save and live comfortably as you move into this chapter of your life.
Finally, ignore the myth of spending three months’ salary on a ring. Spend an amount that makes sense for you.
#5. Spending Based on Your Emotions
One of the biggest mistakes people make when it comes to spending and their finances is they base what they purchase on their emotions.
When you feel down and out, instead of trying to cheer yourself up with fancy things, try to find a free activity or do something that costs no money.
Finding comedy specials on Netflix or listening to Ted Talks work great. If you do this habitually, you will notice you have more money in your checking account, making saving money easier.
#6. Not Considering the Value of Your Time
Too often, we only look at the cost, not the time involved. But your time is something that you can never get back. It might be nice to save $75 by mowing your lawn yourself, but what are you giving up?
The hour you spend mowing could be used to improve your relationships, learn a new skill, or enjoy a hobby. Make it a point to add time to your decision-making process to know if a task is worth doing yourself.
#7. Not Negotiating Job Offers
Too many times when we receive a job offer, we take the offer without thinking of negotiating for a larger salary. But in many cases, the employer is expecting you to counter. And asking for more money adds up over time, thanks to compound interest.
For example, let’s say you have a job offer with a salary of $40,000. Over the next five years, you earn a 3% raise annually. At the end of 5 years, your new salary is $45,020, and you earned a total of $212,365.
But let’s say you negotiated that offer and ended up starting at $42,000. At the end of 5 years, your new salary is $47,271, and you earned a total of $222,983. By getting $2,000 more at the start, you ended up with over $10,000 more in lifetime earnings.
And this is just looking at five years. If we extend this example out 25 years, the difference in lifetime earnings comes to $73,000!
The bottom line is, don’t feel weird about asking for more money when presented with a job. Counter with a slightly higher salary and find a middle ground.
#8. Ignoring Disability Insurance
You hear a lot about life insurance coverage but very little about disability insurance. But the reality is you are far more likely to get injured and not be able to work than you are to die prematurely.
The biggest issue with disability insurance is determining how much you need. This is where an insurance broker comes in and will help you figure out the right about based on your situation.
#9. Trying to Keep Up with Others
There are many ways to measure success, yet the only one that matters is what you define for yourself. And it can be challenging to figure out what success means for you when you’re constantly comparing your life to others.
It’s easy to compare your standard of living with friends or co-workers and feel like you’re not getting ahead. But comparing yourself to others is a big mistake.
For starters, you have different values and goals in life. They may have a big luxury SUV because they have a family. If you don’t, then you don’t need a big luxury SUV.
Also, you don’t know what is happening behind closed doors. They could simply be trying to keep up with others and, as a result, are in a mountain of debt and feeling stressed.
Think about the times you hear about a couple separating and how shocked you are because they seemed so happy. The same is true with money issues. You don’t see the real truth. Focus on yourself, your needs, and what makes you happy.
#10. Putting Off Saving for Retirement
A common mistake is thinking they will start saving for retirement at a time that is better for them. In their 20s, they might think they have more than enough time to get started.
When they are in their 30s, they have added bills from being a new family. By the time they are in their 40s and 50s, the focus is more on college for their kids. And before they know it, they want to retire but have yet to save a dime.
If you don’t start soon enough, you’ll find it harder to reach the point you need to be at to fulfill your retirement plan. It’s always better to get started sooner rather than later.
For example, waiting ten years to start saving for your retirement can mean having $800,000 less! This assumes you save $5,000 annually, earning 8% for 40 years. Make saving something for retirement a priority, so you have money to enjoy in your golden years.
#11. Not Making Debt Payments
If you are in debt, you might want to give up and stop paying altogether. Doing this ensures that your credit score craters and getting new loans will become nearly impossible.
Plus, you will have higher monthly payments from a higher interest rate. And finally, debt collectors will start calling you, making your life a living hell.
If you are in this situation, reach out to a non-profit that can help you organize your finances and put you on the right path to digging out of debt.
#12. Taking Out Too Much in Student Loans
Student loans are necessary for most college students. However, you don’t want to go overboard and borrow so much that you have difficulty paying off your student loans. The idea is to borrow enough to get your education but not so much that you cannot pay it back.
Some experts say you shouldn’t take out more than your expected starting salary after college. If you expect to make $40,000 a year after school, don’t borrow more than $40,000.
The last thing you want is a substantial monthly payment that will make getting by much more complicated. And if you find that you don’t enjoy the career field you majored in, you will regret that you spent all this money for nothing.
Look for ways to lower the cost of education so you don’t have to rely on loans. Attending community college or seeing if you can get hired and have your employer pay some of the cost are two great options to consider.
#13. Not Talking Money Before Marriage
Getting married is a beautiful experience that can lead to a happy life. But it is best to walk into a relationship with your eyes wide open regarding money. When you plan on getting married, make sure you both sit down and discuss your financial situation.
This includes how much debt each of you has, your current monthly income, your long-term financial goals, and if a pre-nup is right for you. If you both know this information before marriage, it helps you work together to achieve them.
Also, there are different money personalities. Some people are savers and tend to live frugally. Others like to spend their money and live life.
While opposites attract, these fundamental differences in how we handle money can lead to much money stress and possibly even divorce. So make sure you have many in-depth conversations about money before you get married.
#14. Not Willing to Pay for Professional Help
Too often, we see spending money as a negative thing and don’t look at the benefits of it.
Sometimes we take saving money too far and try to do everything ourselves. In some cases, we end up spending a lot more money than if we hired a professional.
To determine if a job is a DIY, you need to look at the time required to complete it, as well as the long-term costs. Fixing a clogged drain shouldn’t take too much time and could save you a few hundred dollars, so you might tackle this one yourself.
But managing your finances is another story. Not only will it take a lot of your time, but the long-term cost could be tremendous. Not the amount you pay but what you save.
You might pay a financial advisor $1,000 annually, but if that results in you not making emotional investment decisions, it could save you tens of thousands of dollars down the road.
#15. Making Late Payments
Another massive mistake with credit cards is missing the payment due date. While this doesn’t seem like a big deal, it is.
For starters, you get charged a late fee of around $40. From there, most credit cards will put you into the penalty APR, an interest rate even higher than what you pay on new purchases. This will only balloon your debt even more.
Finally, when you are late, the credit card company will report it to the credit bureaus, lowering your credit score.
This will increase the amount you pay on your current and future debt because you will have a higher interest rate.
#16. Not Having Life Insurance if You Have Children
If your family relies on your income, it makes sense to take out a life insurance policy so they can be cared for if you pass prematurely.
Taking out a term life policy is the smartest move for most people. The monthly premiums are low, and you only pay for it as long as needed.
#17. Buying New Cars
Constantly buying new cars is a financial mistake that will hurt you. Especially if you buy new every couple of years. This is because cars are depreciating assets.
You pay a lot of money for one and then sell it for less than you paid. Repeat this cycle over and over, and you are throwing money away.
The smartest move is to buy a gently used car with low mileage and negotiate the price. You are not getting the newest model of whatever make or model you are looking at, but you are still driving something of quality without the expensive price tags.
Plus, you are saving thousands of dollars in the process. And once you do this, make it a point to keep driving the car for longer than you usually do.
Try to get ten years out of it. If you can do this, you will see a change in your financial situation.
#18. Not Saving Money
Too many people do not make saving money a priority. They believe that to save, they must put $100 away every month. But every budget is different. If you can only afford to put $10 into savings this month, save $10.
A study by LendingClub and PYMNTS found that approximately 54% of Americans live paycheck to paycheck. And 40% of those making $100,000 or more fall into this category.
While saving can be difficult, it’s vital if you’re not interested in experiencing financial ruin in one fell swoop.
Having an emergency fund to fall back on when something breaks down or having money that’s gradually accumulating to help you reach a goal is something that everyone needs.
If you find yourself without any money saved, you might have to rely on tools like credit cards or payday loans to cover these unexpected expenses. This only digs you deeper into debt and worsens your financial situation.
No matter how much you’re making, aim to save a little bit of that first so that you have something to dip into when the need arises.
#19. Not Taking Care of Yourself
This might sound odd to include this in a post about your financial life, but as you age, healthcare expenses will increase and can quickly destroy your finances.
These costs can quickly eliminate all the effort and sacrifices to save and invest. Eat a healthy diet, exercise, and get enough sleep every night, and you can lower the chances of out-of-control medical bills.
#20. Going Into Debt for Your Wedding
Money is a leading cause of divorce, so why throw a massive wedding for which you have to go into debt? When you do this, you are setting yourself up for failure.
You enter the marriage with a substantial monthly debt that you have to pay off now. This could delay the purchase of your home, delay having kids, or even deny you from switching jobs because of the salary.
No one will think less of you if you have a basic wedding instead of a huge wedding. Your guests are there to enjoy seeing you start your lives as a married couple.
They aren’t there to see amazing centerpieces or the other ways you can spend money on the event.
#21. Not Involving Your Partner in Money Talks
A big issue after marriage is only having one person handle the money. While it is okay if one spouse is more interested in balancing the budget and ensuring the day-to-day finances are in order, the other spouse should not be in the dark.
They need to be updated regularly on where things stand.
Even if they have zero interest in personal finance, giving them a basic overview is important. This will lower the chances of money fights when they want to go on a big vacation and find out it isn’t possible because money is tight.
#22. Going Into Credit Card Debt
Credit cards are tools for building credit and credit history. You can even use them to help you earn cash back or lower the cost of the things you buy through the rewards points you earn.
However, too many people use these cards like cash when they find themselves in a bind.
With higher credit card balances, you have larger monthly payments, adding stress to your life. And the higher your balance, the more interest you are paying too.
Another result of high-interest debt is your credit score will drop drastically. When you have large balances, your credit utilization ratio increases, and your credit score decreases.
As your score drops, it is harder to qualify for new credit cards and other types of loans, like a mortgage or auto loan.
When you do qualify, your interest rate will be higher. This makes your monthly payment more, meaning it will be harder to pay your bills and save money. And the higher interest rate means you will pay higher amounts of interest charges over the life of the loan.
Make sure you only use your credit card when necessary and have the cash on hand you need to make the payment during the next billing cycle.
#23. Not Investing Your Money
The future always seems like it’s so far away. However, you’ll find that it rushes toward you at breakneck speed. If you haven’t been investing your money to grow it over time, you will find yourself dealing with numerous financial issues in the future.
Why is it so important to invest? There are several reasons. First, it allows you to keep up with the speed of inflation. If you aren’t investing your money to grow it faster than the current inflation rate, you’re losing money, no matter how much of your income you’re stashing away each month.
Second, investing provides you with the money you will rely on to make it through retirement. Once you quit working, Social Security will only offer so much monthly.
Your savings and investments will help you pay for essentials, medical services, and beyond. If you have no assets by retirement, you will find it very difficult to afford the lifestyle you want or need.
Therefore, make it a point to learn the basics of investing so you can grow your wealth.
#24. Not Having a Will
If you die without a will, your assets are passed down based on the laws in your state. This means family members you didn’t intend on having your assets could be fighting one another over who gets what property or money.
On top of this, they may not be getting the right amount of money to care for your children properly.
All it takes is sitting down with an attorney and drafting a basic will to ensure everything goes as planned if you pass away. The price is a few hundred dollars and worth every penny.
#25. Failing to Start a Budget
To achieve financial independence one day, you must set up a budget. You don’t need anything complex, just something that will track your monthly income and expenses.
This will allow you to ensure you are not overspending and will help you to save money.
The most common argument against budgeting is people want to enjoy living today, and a budget stops that so you can put money away for your future self. The reality is a budget is only as restrictive as you make it.
Most everyone can find a balance when building a budget where they enjoy life today and still put something away for the future.
#26. Not Knowing Your Credit Score and Rating
Your credit score is an important part of your financial picture.
Make sure to check your credit report regularly for any inaccuracies or signs of potential identity theft.
It’s also essential to know what type of interest rate you may qualify for when making major purchases such as a car or home.
Knowing your credit score and rating can help determine whether or not you get approved for a loan, and the better your score, the lower the interest rate you’ll likely receive.
#27. Denying That You Have Money Problems
The first step to fixing a problem is acknowledging it.
Admitting defeat can be hard, but pretending like you have no money troubles is only going to make the situation worse.
Be honest with yourself and build a plan for getting out of debt and back onto solid financial ground.
#28. “I’ll Worry About It Tomorrow”
Procrastination can be a real money-waster.
If you put off tackling your debt, it will only accumulate interest and become harder to pay off as time passes.
It’s also important not to let bills pile up until the last minute; late payments can lead to costly fees that add up quickly.
Take action today and create a budget that you can stick to in order to pay off your debt.
#29. Buying Too Much of a House
Becoming house rich and cash poor is an all too real experience for many homeowners. People buy a home at the upper limit of what they can afford, and then they are stuck with a high monthly mortgage payment.
This large payment eats into their ability to save money, putting them behind when it comes to saving for retirement. It even puts stress on trying to save for other short-term and long-term financial goals.
When shopping for a home, make sure you look at homes where you can comfortably afford the monthly payment. The last thing you want is to live paycheck to paycheck because the house you bought is one you can’t afford.
21 Habits of The Wealthy
Do you know what separates the wealthy from everyone else? It’s their habits.
The good news is learning their habits is simple which means with a little effort, you too can become wealthy.
How Much is $20 an Hour Annually
If you make $20 an hour, you probably want to know what your annual salary is for budgeting reasons or if you are looking for a new job.
While it sounds easy enough to to figure out this number, there are some variables that come into play.
Things like overtime, paid time off, and even how many work days there are in a year.
Here is how to figure out how much you will make if you are paid $20 dollars an hour.
Are Hybrids Worth It?
Many people think buying a hybrid car will save them money.
They base this on the fact they will buy less gas, which means saving money. But they don’t take into account the higher cost of a hybrid vehicle. Can this difference make a hybrid more costly to own?
How To Have Stealth Wealth
When we think of the wealthy, we think of big homes and flashy cars. But many millionaires have stealth wealth.
This means you would never know they are rich by looking at them. The benefit? People leave them alone.
How To Get Back On Your Feet
When financial setbacks happen, you have two options. You can either give in and accept a life of struggle and stress, or you can do something about it.
If you want to do something about it, here are the steps you need to take in order to get back on your feet.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.