People are bound to make gigantic money mistakes throughout their personal finance journey. Without understanding the mistakes that they are making, it’s difficult to dig themselves out of a giant hole that they’ve made for themselves. It’s crucial to know when a mistake is made so that it can be promptly corrected.
I’ve made more money mistakes than I can count. Some are big and some are small, but it’s still not a good feeling to know my current situation could have been better if I didn’t make the below mistakes. As your personal guinea pig, I’ve found what hasn’t worked so well for me in the past so you don’t make the same mistake again.
Some of the mistakes that I list are mistakes that I’ve seen my friends made. This is a comprehensive list of mistakes that I’ve seen over the years that I’ve packaged for you. One money mistake that you don’t want to make is not SMASHING that social share button for the Google algorithm!
You should post this article to your favorite social media platform so that your friends can learn as well.
Everyone’s financial lives should be improved so if you can share the information at no cost to you, why wouldn’t you? These articles take a long time for me to create so if you could help me out, I would really appreciate it!
The Worst Money Mistakes to Avoid
Below are the 10 worst money mistakes to avoid.
Money Mistake #1: Spending Above Your Means
I’ve seen it time and time again. So many college graduates release their pent up demand they’ve brewed up in college and unleash it during their working years. Every Friday, they go out and spend $100 in alcohol for the whole table and group of friends.
They’ve gotten sick of living like a student for four years and want to actually go out and spend as much money as they can. As a result, they bite more than they can chew and spend more than they should. This doesn’t just apply to college graduates as well.
So many people live above their means and actually take on debt in order to bridge the funding gap between their income and expenses. I totally understand that money should be enjoyed while you are living. However, you don’t want to enjoy your money too much. It’s the most classic money mistake.
There’s always a limit to how much you should be spending, unless you’re a billionaire. Do you really need to buy the most fashionable clothing that you’re going to wear one time for the occasion? You don’t. Take a good look at your income versus expenses and actually run the numbers.
The difference between cash in and cash out shouldn’t be negative in a year.
Money Mistake #2: Not Setting Bills on Autopay
One of the most overlooked money mistakes is not setting your bills on autopay. The late fees on some bills are ridiculous. Some providers charge $10 just for not paying a $40 bill on time. What! No way should you ever pay a 25% increase in a bill.
I’ve made these mistakes here and there where I was charged a $10 late fee with no chance of reversal. It’s not a good feeling because you could have easily paid off that balance but it was just that you forgot.
Good companies will waive a one-time and first time fee without giving it a second thought. You should always check with the vendor and if they refuse to refund you the fee, tell them you will take your business elsewhere. Then they will magically be able to waive the fee afterwards, especially if it’s a one time fee.
Some don’t, most do.
You shouldn’t put yourself in that position in the first place. Many companies these days actually have an autopay discount. Your interests are aligned with theirs. You want to pay the least amount as possible and they want to get paid. Autopay creates a win-win situation and lets you just set it once and forget about it.
That leaves time for you to do more productive things.
Credit card, phone, internet, and insurance bills are some examples of things you should pay on autopay.
Money Mistake #3: Buying a New Car
This is one of the most common money mistakes ever. Don’t ever buy a new car. When you drive off that car off the parking lot, 10% of the value is gone. Just like that. Poof. Gone into thin air never to be returned. Instead, you should buy a reliable used car that you can use for years to come. Let someone else pay for that instant depreciation while you swoop in on the value like a vulture.
I drive a 2015 car that I’ve used for the past five years. My car only needed about $600 worth of replacements in those five years. I had to replace 2 tires, a battery, and a coolant cap. Other than that, it runs flawlessly and I have no plans to change out the car.
After proper maintenance, my car will last me another 5 years more at a minimum. I am more than fine spending $10,000 in transportation costs over 10 years.
There’s a lot of money mistakes that you can make, don’t let a new car be one of them. It’s one of the biggest mistakes you can make because of how expensive cars are. It’s one of the first five figure purchases people will make in their lifetime. Start off your personal finance journey on a good note, not a bad one.
Money Mistake #4: Avoiding Investing
The financial crisis of 2007 – 2009 destroyed many people’s confidence in investing in the stock market. Especially after having almost sideways returns from 2000 – 2007. That was one of the worst times to lose confidence in the stock market by far.
Investing should never be one of your money mistakes. As we’ve seen from 2009 – 2021, the bull market run has been the strongest that we’ve ever seen.
There are no signs that it will slow down, either. I almost lost confidence when I lost $90,000 in the stock market in March 2020 due to the coronavirus pandemic. I still stayed the course and regularly contributed to the S&P 500, even though I was nervous daily.
My net worth has been hitting all time highs in 2021. I’m hoping the momentum will continue.
Don’t evaluate your stock picking skills based on what happened over 1 – 2 years. Instead, evaluate your performance over 10 – 40 years. Meaning, you shouldn’t even think about whether you are losing or making money until at least after a decade. Set it and forget about it.
The United States has a huge workaholic culture that employees buy into. With such a culture, it’s difficult for the stock market to end up lower than where it is today.
Money Mistake #5: Not Using Credit Cards
You HAVE to build credit. One of the ways the rich get richer and the poor get poorer is because of credit scores. It’s becoming much more important than ever before. Credit scores are used for rental applications, getting a mortgage, and even getting a job.
It is ridiculous that companies even check credit scores. Although I haven’t personally heard of job candidates getting rejected because of credit scores, it is still ridiculous. What does credit scores have to do with your ability to do the job? Regardless of which, you need to build credit for the future.
It takes a long time, think years, before credit starts moving from the 700’s to the high 700’s. It takes even longer to move from high 700’s to the low 800’s. As long as you are paying off your balance off on time and in full, you should always have a credit card.
If you mismanage your money and use credit cards to pay off for your wants, then you should not have credit cards. Change your mindset first then move on to building credit.
Money Mistake #6: Not Negotiating Your Pay
When I switched jobs, I didn’t negotiate. That cost me at least $5,000 – 10,000 per year. That is a huge loss! They offered me a 43% increase in base salary and I only focused on that, to my detriment. The overall increase in compensation wasn’t that significant. It was maybe a 5% raise.
I didn’t negotiate because I saw the dollar signs and didn’t see the bigger picture.
I know better now. Every time I’ve received an offer then, I negotiated. There was always a risk that the deal would fall through. However, it is better than taking a job after losing the negotiation. This is one of the most underrated money mistakes ever. Too many people avoid negotiating because they’re afraid of the deal falling through.
Now that I think about it, I should have been completely fine letting the deal fall through. I don’t know why I didn’t think in such a way when I was negotiating but I learned now. Always negotiate your pay. Even if the first offer is higher than you thought, always negotiate. You don’t have to negotiate based on money, either.
You can negotiate vacation days, work from home schedules, 401k matching, start date, and more. There are many things to negotiate, find the right points that works for both sides.
Money Mistake #7: Having No Budget
You can’t improve what you don’t measure. There are people who tell you to not have a budget because it reinforces a scarcity mindset. That is false. If you don’t track where your money is going, there’s very little chance that you will have a lot leftover.
It’s fine to go over budget on some months. However, it should be under budget in the following months to make up for that difference.
I have a ~$1,100 month budget that I’ve religiously kept to, not including rent expenses. I spend way less than the $13,200 that I am expected to spend by the end of the year. That’s additional savings that goes straight to the stock market. I amassed a six figure fortune in my early 20’s because I stuck to my budget. Month in and month out.
Keep a budget and account for your spending. Common things to keep in mind for are food, insurance, utilities, fun, and gas. Increase or decrease these categories based on your specific situation.
Money Mistake #8: Renting an Expensive Apartment
Your rent should not be more than 20% of your monthly income. Experts say you should keep rent expenses to “33%”. That is false. 33% is too high of a number. At my income of $116,100, I should be spending $3,200 per month on rent alone. I downright refuse to do that.
When I was making $56,000 a year, I spent $700 a month on rent. I could have spent up to $933 based on my 20% guideline but I went even further. If finding affordable housing that you like is really that hard for you, then find a roommate. Split that cost in half. Continue to live like a student for a few more years after college.
Even if it’s been a while since you’ve graduated college, live like a student for a couple of years. Short term pain for long term gain is more than worth it. There is available quality housing out there for people on a budget. You just have to go and find it.
Money Mistake #9: Not Having an Emergency Fund
Emergency funds can literally save your life from doom. They save you from unexpected expenses that always come up when living life. Aim to save 3 – 6 months of living expenses. Everyone has a plan until life punches them in the face. Life likes to throw curveballs and punches at people. If you think it can’t happen to you, it will happen to you.
Life comes at you fast. You need to prepare for things that will happen to you. If it hasn’t happened to you yet, it’s only a matter of time before it does. Live a stress free life instead of a stressful one. Money mistakes are everywhere and not having an emergency fund is a big one.
A police offer wrote me a $144 parking ticket violation for parking within 15 feet of a fire hydrant. Although I wish I fought the ticket, I still paid for it no problem. Emergencies like that can happen when you least expect it so make sure to be prepared for them.
Money Mistake #10: Not Paying Off Debt
If you are in debt, the money that you have or make isn’t really yours. It’s your creditors’. You have to spend time paying off others instead of paying yourself first. Even worse, the debt balance balloons to even higher levels if you don’t pay more than the minimum balance. The interest payments on debt is quite meaningful to manage.
If you carry a balance in your credit cards, pay off these debts first. Credit cards carry some of the highest interest rates than any other debt. A 20%+ APR rate? That’s an even better investment than the stock market. When you invest in the stock market, you hope to get 7 – 9% yearly returns.
That’s even when equity investments are supposed to pay better than debt investments because it is riskier.
That doesn’t make sense does it? Therefore, you should pay off your debt as much as possible. If you have good debt, then it’s fine to keep it. Good debt is when you can earn more than the interest payments. Bad debt is when you earn less. When you have credit card debt, that is almost always bad debt.
There’s few investments that offer more than 20%+ returns a year. A 20% return is massive.
Money Mistakes are Completely Avoidable
The best part is that the above money mistakes can be completely avoided. It’s all based on you and your decisions that drive your financial future. That is great news! You don’t have to be a genius in order to achieve financial success. All you have to do is apply the right decisions and you’ll be financially set.
I’ve made big money mistakes from the above list like not negotiating my pay. Even though I lost the negotiation, the silver lining is that I learned from my mistake. That’s also what’s great. Even if you’ve made these money mistakes in the past, you can always correct and improve on it.
If you’ve spent more than 25% of your pay on rent, you can move to another place when your lease agreement is up. If you haven’t used a budget, then now’s a good time to start it. The thing about personal finance is that mistakes aren’t permanent. They’re temporary. You have ample time to correct your mistakes and live a better life.
Life is long. There’s always plenty of time leftover for you to get to where you want to be. I’ve made some of the mistakes above and I’m doing just fine. As long as your positive choices outweigh your negative ones, you will always end up in a net positive position.
You will always be in a positive position as long as you recognize that you are making money mistakes and adjusting accordingly so that you don’t make the same mistake twice.
The 10 Money Mistakes:
- Spending about your means
- Not setting bills on autopay
- Buying a new car
- Avoiding investing
- Not using credit cards
- Not negotiating your job
- Having no budget
- Renting an expensive apartment
- Not having an emergency fund
- Not paying off debt
