10 Most Common Money Mistakes You Must Avoid

When you start your personal finance journey, you need to do your research and be vigilant in order to avoid financial mistakes. Making the decision to take your finances seriously and begin your personal finance journey will come with its ups and downs, so it’s best to stay informed and prepared. Let’s start with some common financial mistakes that can come along your way.

WHAT ARE MONEY MISTAKES?

Money mistakes are the poor and uninformed decisions you might commit when handling your finances. These can negatively impact your financial health and in the long run, create financial struggles such as debt and bad credit.

FAILING TO BUDGET OR TRACK SPENDING

The first common money mistake is not setting a budget. The entire foundation of smart spending is smart budgeting. You need to understand how you spend your money and where it goes in order to create a budget that works for you. When your paycheck arrives and you do not set a budget, you may overspend, miss bill payments, incur unwanted interest and fees, and increase or go into debt.

Along with this money mistake is not tracking your spending. Let’s say you have set your weekly or monthly budget but you do not take the time to track where your money goes. Tracking your spending gives you a good picture of where your money goes and when it leaves your wallet. When you track expenses and see how much you spend on certain items, you are more aware of how much you have left in your budget. It also helps you monitor your expenses and see if there are any suspicious transactions in your account that need to be reported or disputed.

IGNORING EMEGENCY FUND

The second money mistake is something that the financial planning community talks about all the time– your emergency fund. Growing your emergency fund before investing all your money in the stock market is advised because you never know when an emergency is going to happen. When you have an emergency fund, any unforeseen event that requires you to take out money will not worry or stress you out so much because you know you have funds set aside for such events.

Read more on how to use your emergency fund wisely.

LIVING WAY BEYOND YOUR MEANS

Onto the third money mistake which is living beyond your means. What is living beyond your means?

This happens when you are living a lifestyle or spending more than what you actually earn. This can also be when you don’t spend more than what you earn, but you do not save or invest any amount from your paycheck, leading you to live paycheck to paycheck.

ALLOWING LIFESTYLE CREEP TO HAPPEN

The fourth money mistake is in cahoots with living beyond your means. It is allowing lifestyle creep to happen. If you are currently earning well and living a comfortable life, and saving and investing enough money, then you get promoted or get a raise, your lifestyle and spending does not need to increase along with your income. When you buy a new car, get a bigger home, or spend more on shopping and eating out because you have an increase in income, those expenses and fees will slowly creep up on you and that comfortable life you had will be no more.

It is best to stick to your budget and assess your finances before making any big purchases and lifestyle changes.

NOT INVESTING EARLY OR OFTEN ENOUGH

The fifth money mistake is not investing in this lifetime and not setting aside a portion of your monthly earnings for investments. Some people might think that investing is a one and done game. If you invest a big lump sum of money at the beginning of the year, you do not just sit around and wait. With every income that you earn, you need to take at least 15% of that and invest it in either the stock market, funds, real estate or your business. 

NO RETIREMENT PLAN

The sixth money mistake is often overlooked because a lot of us are obsessed with the now and don’t think about 50 years down the line when we want to just chill by the beach, enjoy a drink and read a good book. Have a plan for retirement and even if investing and creating businesses to build wealth is a part of that plan, you also need to have a separate retirement plan. Whether it’s a company retirement plan or getting your own personal retirement plan, deposit a certain amount of money into a fund for your older, wiser self.

UNDERESTIMATING TAXES AND FEES

The seventh money mistake is something we might forget to account for: taxes and fees. There is a tax for almost everything and banks and financial institutions have fees for late payments, card renewals, withdrawals, transactions and so much more. 

This is a common money mistake because if you ignore and don’t understand these additional costs, you might incur unwanted fees that slowly add up and ruin your financial goals. When you make big purchases like a house or car, open an account with a bank, sign up to a program or subscription, or invest in anything, know that there are fees and taxes involved. This is a reminder to read all terms and conditions so that you can make an informed decision with your money.

NOT SETTING FINANCIAL GOALS

The eight money mistake that you must avoid is not setting any financial goals for yourself. Do not write down a generic financial goal. Your financial goal should have an amount and even a timeline. Ex: Save 50k in 6 months. Have actual numbers with your goals so you can see and quantify your progress in your personal finance journey. This is a big money mistake you might make when you get too excited about getting your first paycheck, making a budget, or investing and setting financial goals slips your mind.

IMPULSE AND EMOTIONAL SPENDING

The ninth money mistake is not having enough discipline ang giving in to impulse purchases and emotional spending. Life happens– you mess up at work, get in a fight with your partner, or just feel down that day. You might think that retail therapy will be good and cheer you up but having this become a habit will suck you into a financial wormhole that leads to overspending, going over your budget, messing up your money mindset and even credit card debt.

This does not mean you cannot buy what you want when you want. It just means you need to be smart with your spending. Make conscious decisions with your shopping. When you are in the early phase of your personal finance journey, you need patience and discipline. Remember that material things will not fill a void when they are bought without intention.

NOT HAVING SINKING FUNDS

The tenth money mistake is not having sinking funds for future expenses you know are gonna happen down the line. 

What is a sinking fund? It is a fund you deposit into on a regular basis (weekly or monthly, your choice) to save and prepare for a particular event and each fund has its own purpose. This is very different from an emergency fund. With sinking funds, you know you need something in the future so you prepare for it. 

Christmas comes once a year and you know you want to buy gifts, so you set up a sinking fund early in the year and by December, you won’t have to worry whether or not you can afford to buy gifts this year. It is already in your fund. If you enjoy attending concerts, you can set up a sinking fund dedicated to buying concert tickets and merch. 

You can have as many sinking funds as you need and depending on your lifestyle. Some good examples of sinking funds are a travel fund for the costs of your next trip, pet fund for your furry bestie’s needs and checkups, car fund for paying off installments and repairs, and home fund for a down payment on your first home.

FINAL THOUGHTS

These are the 10 most common money mistakes you must avoid. I myself have made a few but we live and we learn. I have a long way to go in my personal finance journey but I know I have come far and that makes me proud.

If you realize you have made one of these money mistakes, do not worry because it is never too late to start and rectify these mistakes. Take a step back and reassess where you are in your personal finance journey. The perfect time to take the first step to reaching financial freedom is now.

Much love, Sabel