Despite having a strong background in personal finance I’ve made several financial mistakes over the years. So you’re not alone if you’ve made some as well. The good news? Every mistake is a learning opportunity, and with the right steps, you can turn things around.
In this post, I break down 10 common financial mistakes that could be holding you back from building the financial future you want. These are all mistakes I made or know others who made so I’ll also tips I learned from each situation that can help turn that mistake into a positive.
1. Not having financial goals
As with anything in life having goals gives you something to work toward. Without having specific financial goals in place you’ll start to find yourself floundering and not at the place you want to be financially.What are your financial goals? Do you want to own a home? Travel more? Cash flow college for your kids? Buy a car with cash? Start a business? Retire early? Or give more to charities?
If you don’t have any financial goals set, take 30 minutes today to sit down with a piece of paper and map out what you want to achieve with your money this year and five, 10, or even 20 years down the road.
2. Missing debt payments
this is a mistake to avoid because it can really harm you financially in more ways than one. It can cause you to pay more interest and late fees because of that missed payment. Plus it can negatively impact your credit score.I’ve only missed one debt payment in my entire life. It was for a credit card that for some reason I opted to do manual payments. Meaning I had to remember to log in each month and set up payment. After I missed that one payment and saw the late fee, I set up automatic payments. The stupid thing is the balance was so low that the late fee was just as much or more than the balance.
Here are some things you can do if you find yourself missing debt payments
- Use automatic bill pay
- Set up email and text reminders of upcoming due dates
- Change your statement and/or payment date to one that works better for you
Related read: 7 Tips For Paying Off Your Debt Quicker
3. Borrowing from family and friends
Just don’t do this! I’ve heard and read so many stories of people who borrowed money from friends and family and it forever changed the relationship negatively.You may start to feel guilty for not paying the family member or friend back and may even start taking that guilt out on them. The family member or friend you borrowed from can start bugging you if they need the money or they just want their money back. It can get to the point where you don’t talk to each other anymore or even want to be in the same room.
If you do end up borrowing money from family or friends be a person of your word and make it legal. Get a formal contract drawn up and notarized outlining the payment terms, the payment period, and what happens if payments are missed.
4. Not having a budget
Most people think a budget keeps them from spending money but it’s the opposite. A budget gives you the freedom to have more fun with your money because it’s a spending guide. It helps you determine where your income should go and be spent each month.By not having a budget you have no idea of where your money should or could be spent. This could result in you spending too much money every month and even missing out on your financial goals.
I share more about how to create a budget in How To Create A Monthly Budget For Your Household.
Accidents happen whether it’s your car, home, or your health. The point of having insurance is it provides financial assistance to help cover costs when bad things happen. This could be anything from a house fire, to a car accident, to a health scare.
If you don’t have the right insurance in place, you end up having to pay more out of pocket to fix or replace what’s been damaged, and that can have a heavy negative impact on your finances.
You can make sure you have the right insurance by reaching out to an independent insurance broker to get an assessment of your insurance situation. I worked with an independent insurance broker to find the right insurance to make sure my home and car were properly covered. That way if anything ever needs to be replaced I have the right insurance to make that happen so I’m not completely covering the costs myself out-of-pocket.
Insurance provides financial assistance to help cover costs when bad things happen such as a car accident, house fire, or health issue.
So we should be re-evaluating our insurance policies yearly for four reasons
Learn more about the why and how for evaluating insurance policies in the Importance Of Evaluating Insurance Policies Yearly
The key word here is emergency. This means it’s something unexpected that couldn’t be planned for and needs to be taken care of such as medical or health-related, a job layoff, or expensive car repairs.
Having an emergency is beneficial in other ways than financially.
I probably shouldn’t be too surprised as many of these adults lived through the great recession one of the biggest stock market dips and saw their parents and grandparents, or themselves, panic and their portfolios dip for a period of time. Plus, investing can be daunting with all the options out there, but it's the key to beating inflation and growing your wealth over time!
What I found with investing is that you can’t let intimidation or fear hold you back and keep you from generating wealth. Here are 5 simple steps for getting started with investing:
If you’re still unsure, that's ok. You can reach out to a financial advisor or financial planner for guidance. I share more about how to find one in 3 Reasons To Work With A Financial Advisor <<<>>>
Typically over your career, you make more money either through raises or by changing jobs for a bigger salary. When that happens we may increase our standard of living but we forget to increase our 401(k) or 403(b) contributions. Now you will automatically be putting more money in because 4% of your new salary is more than 4% of your last salary but increasing that contribution by even just 1% can make a huge difference in the returns you see.
If it’s been a while since you've looked at your 401(k) or 403(b) contribution amount, log in and calculate what it would look like to increase your contribution by 1%, 3%, and 5%. See which best fits your budget and then reset your contribution amount.
My two cents, this is more likely the earlier you are in your career as this is setting the stage for your career and salary trajectory.
I know I've left some money on the table by staying at jobs for several years. I stayed at one job for almost 7 and only got teeny tiny raises that did very little to increase my income. Staying there for so long kept me from earning more income over time, having more money to invest, and gaining more work experience that would have made me a more valuable employee.
If you think you're losing out on earning more money there are two options:
5. Not having the right insurance
Insurance can sometimes seem expensive and unnecessary. The truth is it’s even more expensive to not have any or the right insurance in place.Accidents happen whether it’s your car, home, or your health. The point of having insurance is it provides financial assistance to help cover costs when bad things happen. This could be anything from a house fire, to a car accident, to a health scare.
If you don’t have the right insurance in place, you end up having to pay more out of pocket to fix or replace what’s been damaged, and that can have a heavy negative impact on your finances.
You can make sure you have the right insurance by reaching out to an independent insurance broker to get an assessment of your insurance situation. I worked with an independent insurance broker to find the right insurance to make sure my home and car were properly covered. That way if anything ever needs to be replaced I have the right insurance to make that happen so I’m not completely covering the costs myself out-of-pocket.
6. Not Regularly Evaluating Insurance Coverage
No one likes to talk or deal with insurance because it isn’t a fun or exciting topic. It is however crucial in our financial journey because it acts as a safety net for us.Insurance provides financial assistance to help cover costs when bad things happen such as a car accident, house fire, or health issue.
So we should be re-evaluating our insurance policies yearly for four reasons
- To ensure that you have the right coverage to protect yourself and your assets
- To confirm life changes such as a move, marriage, kids, or new job haven’t triggered a need to change or update coverage
- In case you’ve bought something that needs to be insured or sold something that no longer needs to be insured such as a house, boat, or car.
- To potentially save money by switching insurance companies or finding qualified discounts
Learn more about the why and how for evaluating insurance policies in the Importance Of Evaluating Insurance Policies Yearly
7. Not having an emergency fund
Do you have enough cash to cover a $400 or $1000 emergency? If you don't, you're not alone. Most Americans don’t either but that doesn’t have to be the case if you have an emergency fund. An emergency fund, sometimes called a rainy day fund, is a specific amount of cash set aside to be used when a financial emergency hits.The key word here is emergency. This means it’s something unexpected that couldn’t be planned for and needs to be taken care of such as medical or health-related, a job layoff, or expensive car repairs.
Having an emergency is beneficial in other ways than financially.
- It helps you feel less stressed because you have the money to cover the emergency
- You make better decisions because you don’t have to wonder or worry about where the money will come from
- Emergencies feel less like an emergency because you can focus on the situation at hand vs. how to pay for it
- It helps you stay out of debt because you don’t have to turn to loans to pay for the emergency
Related read: How To Grow Your Emergency Savings This Year
8. Not investing
A 2024 Gallup Poll shows that “ 62% of U.S. adults own stock.” I would like to see that number higher as investing is one of the ways to make big purchases and fund your retirement.I probably shouldn’t be too surprised as many of these adults lived through the great recession one of the biggest stock market dips and saw their parents and grandparents, or themselves, panic and their portfolios dip for a period of time. Plus, investing can be daunting with all the options out there, but it's the key to beating inflation and growing your wealth over time!
What I found with investing is that you can’t let intimidation or fear hold you back and keep you from generating wealth. Here are 5 simple steps for getting started with investing:
- Define your investment goals: Are you investing for retirement, to buy a house 5+ years from now, or for your kids' education? Knowing your goals helps you determine where and how to invest.
- Choose your investment account: There are different accounts for investing based on what your goal is. Some accounts are specifically for education (529) or retirement (401(k), IRA). There are others like a standard brokerage account that can be used for any investment. Do your research to figure out which type of account is best for you.
- Set up your investment account: Depending on the account this is something you can do on your own or may need help with. For a 401(k) you can only get that through your employer so you’ll need to talk to the HR rep at your job. A standard brokerage you can set up yourself by going to a brokerage like Fidelity.
- Deposit into your account: Once your account is set up and active you’ll need to deposit money into it so you can start buying investments.
- Research and select your investments: One mistake a lot of people make is putting money into an investment account but not selecting the actual investments to purchase. You need to direct the money deposited into the account to purchase the mutual funds, bonds, or stocks you want to invest in.
If you’re still unsure, that's ok. You can reach out to a financial advisor or financial planner for guidance. I share more about how to find one in 3 Reasons To Work With A Financial Advisor <<<>>>
9. Not increasing retirement contributions
I was guilty of this for years and it’s one of my few regrets in life.Typically over your career, you make more money either through raises or by changing jobs for a bigger salary. When that happens we may increase our standard of living but we forget to increase our 401(k) or 403(b) contributions. Now you will automatically be putting more money in because 4% of your new salary is more than 4% of your last salary but increasing that contribution by even just 1% can make a huge difference in the returns you see.
If it’s been a while since you've looked at your 401(k) or 403(b) contribution amount, log in and calculate what it would look like to increase your contribution by 1%, 3%, and 5%. See which best fits your budget and then reset your contribution amount.
10. Staying at a job too long
Research has shown that staying at the same employer for more than 2-3 years can cost you up to 50% of your lifetime earnings. Yikes!My two cents, this is more likely the earlier you are in your career as this is setting the stage for your career and salary trajectory.
I know I've left some money on the table by staying at jobs for several years. I stayed at one job for almost 7 and only got teeny tiny raises that did very little to increase my income. Staying there for so long kept me from earning more income over time, having more money to invest, and gaining more work experience that would have made me a more valuable employee.
If you think you're losing out on earning more money there are two options:
- Ask for a raise. When asking for a raise don't just say you want more money you need to show why you deserve more money. As financial coach Ken Coleman likes to say "Your main request should be this: 'Give me more responsibility so I can create more value for the company.' When you frame it that way, the money will naturally follow."
- Look for a job elsewhere. If you go this route don't plan to use any job offers to get a higher salary at your current job. It could backfire on you and burn some bridges at the place that made you an offer.
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