The 10 Financial Mistakes You Must Avoid

Avoid these mistakes and avoid financial stress

You might wonder why I’m talking about financial mistakes as a health coach. Let me explain that. What you might not know about me is that I completed the education for a certificate in financial planning. I never sat for the board exam or worked in the field. I gained the knowledge to help my family and because I’ve always enjoyed investing and being frugal. This article serves for informational purposes only. I am not your financial planner and am not giving financial advice. 

The other reason I am talking about finances is that financial issues can cause a significant amount of stress. And stress causes health issues. Plus, I realize that many of my performing friends struggle with finances because of job instability, especially right now.

There are many factors that contribute to stressful financial problems. One of the most common problems is outspending your income. No one can spend more than they earn without negative consequences. If you spend more than you make, you will run out of money. 

If you struggle with financial challenges, check to see if you are making any of these common mistakes. Luckily, a few changes in your habits can improve your financial situation. 

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How to avoid Common Financial or Money Mistakes

Do you make these common financial mistakes?

1.  You don’t have an emergency fund. Without a rainy day fund, your finances can get into serious trouble. You’ll be forced to use credit cards, dip into your retirement accounts, or skip paying some of your bills to pay for the surprise expense. All are serious setbacks to your finances. Dave Ramsey suggests starting with $1,000 in your emergency fund. Over time, you should build up to at least 3-6 months of your expenses. Emergency funds give you peace of mind when unexpected things happen. According to this 2019 Go Banking Rate survey, 69% of Americans have less than $1000 in savings. 

2.  You don’t pay yourself first. One cause of financial difficulties is failing to save on a regular basis. Many make the mistake of paying all of their expenses first, intending to save the remainder after expenses. There’s never anything left over with this strategy. Pay yourself first and then worry about other expenses. The easiest way to pay yourself first is to have it come out automatically into your retirement account. Check to see if your place of employment offers a 401K. If your savings plan runs on autopilot, you may not even notice (if you start small). This is a less painless way to save. To get an idea of how much you should save for retirement, check out this article. 

According to this article, only 58% of Americans are saving for retirement and most aren’t saving enough. 

3.  You don’t use a budget. Without a budget, even millionaires can go bankrupt. Take some time to create a realistic budget. My favorite tool for creating budgets is the tool from You Need a Budget. I have been using it for many years. You can get a free month here by using my referral link. They also offer online workshops teaching you how to budget. I can’t say enough good things about this program.

4.  You don’t think about the long-term consequences of your spending. Overspenders often focus on their short-term pleasure. Do you need that fancy coffee drink every day? Make special treats a monthly treat instead of a daily treat. Not only will you be saving money, but you will also eliminate some sugar from your diet. Make financial decisions with a long-term focus and you’ll find your wealth growing year by year.

5.  You lack the knowledge. You might be required to take Math, English, and Science in school, but a personal finance class is rarely required. Unless you learned financial responsibility from your parents, you’re on your own. Buy a few books or research online and educate yourself. 

6. You spend too much on your housing and transportation. It’s easy to make the mistake of purchasing as much home as your finances will allow. When you apply for a loan, lenders often approve you for a lot more than you should spend. The same goes for that new car. However, it’s important to keep these expenses under control. Buying a new car is not the smartest way to spend your money. My family buys our cars used, and we drive them until the repair costs no longer make sense. We have had 5-10 year periods where we weren’t making a car payment. These savings build up over time.

7.  You don’t differentiate between “wants” and “needs. We might want a fancy car with all the bells and whistles or a 70” TV, but these aren’t responsible purchases for most of us. Most assets like cars and electronics lose money quickly. As much as possible, limit your spending to needs rather than wants. Give yourself the space to decide if you really want to purchase something. If it’s something you want, wait at least a week or two before buying. We often lose interest after giving it some breathing room.

8.  You’re stuck. If you’re in a challenging financial situation, it’s easy to feel hopeless and stuck. Taking action becomes challenging because you don’t have a clue where to start and you feel overwhelmed. Getting yourself out of a financial hole can take time, but it’s doable. Get help from an expert if you need to.

9.  You use an excessive amount of credit. Reasonable uses of debt include purchasing a home or investing in your college education. Most other uses are detrimental to your finances. You ultimately have to pay for your “wants”, plus interest, when you use debt to make the purchase. Dealing with debt is like racing against the storm. It makes everything difficult and life more stressful. Credit cards aren’t bad if you use them in a responsible way. We pay off the balance every month and we use it for almost all our purchases. We like that you can accumulate points or other awards by making purchases. You shouldn’t do this if you don’t know how to budget. 

10. You spend more than you earn. This is the primary reason for money problems. You won’t run out of money if you spend less than you make. Our society encourages unnecessary expenditures. Don’t try to keep up with the Joneses. Practice the self-discipline to spend less than you earn.

Financial mistakes are common. The only way to avoid a small or negative bank account is to save regularly and spend less than you earn. Start saving at least 1% of your paycheck today. Don’t use your credit cards unless you know how to use them responsibly. Keep increasing the amount you save each month and look forward to the future. You can live a financially responsible life and reduce your stress levels. 

To read about other areas of wellness you should be concerned about, check out this article.

Disclaimer: I am not a medical doctor, therapist, Registered Dietitian, or financial advisor. The information presented is purely for informational purposes.  Check with a doctor or other professional before making any nutritional, fitness, lifestyle, or financial changes. The author and blog disclaim liability for any damage, mishap, or injury that may occur from engaging in any suggestions or ideas from this site. For a full disclaimer, read this. 

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The 10 Financial Mistakes You Must Avoid

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