We all make financial mistakes.
In fact, I’ve made a bunch of horrible and insanely big financial mistakes in the past. I’ve taken out student loans, financed cars, maxed out a credit card, borrowed money from family, overspent and so many more. It hurts to think about sometimes.
But here’s what I did right: I looked at my financial situation, took responsibility for my mistakes, and fixed my finances. I DID IT. Nobody else. No one was coming to save me.
So in this post, we’re going to be looking at the 37 biggest financial mistakes and learning how to avoid them all. Plus, how these mistakes can hurt you and a simple word of advice for you. Because I don’t want you to lose hope.
You CAN avoid these mistakes. And you CAN fix your finances. It starts today, with this post. You ready? Let’s go!
How financial mistakes can hurt you
Financial mistakes can be HUGE if you make the wrong one at the wrong time in your life. So here are 3 ways that financial mistakes can hurt you:
- Negative net worth: financial mistakes like student loans, maxed out credit cards, car loans, equity loans, and other debt can put you into the red. Few too many assets and way too much debt can cause you to have a negative net worth. You have to stop making financial mistakes so that you can change this and slowly start moving toward having a positive net worth (meaning you actually have some money). If you don’t, your net worth will never be positive.
- The cost of debt: keeping and carrying any balances of debt can really cost you every month. Since all debt causes payments of some kind, the more debt you have, the more the payments really begin to add up until you’re living paycheck to paycheck. If that happens, you may start using credit cards to supplement your income and that can be disastrous. Debt can steal all of your money away every month and not allow you to make any financial progress.
- Building wealth: since debt steals your money and big financial mistakes cause you to go into the negative, it can be REALLY hard to dig yourself out of the financial hole that you’re in. If that happens, you can forget about building wealth. However, if you fix the mistakes, you can get out of the hole and start making progress toward building wealth. It’s not easy, though.
Don’t lose hope
Even if you’ve made a bunch of mistakes or you’re trapped under a mountain of debt, I don’t want you to lose hope. Because you can fix the mistakes you’ve made and come back out on top. I did. I’ve tackled $30,000 plus dollars in debt twice, with my income gradually increasing.
You CAN get out of debt and you CAN fix whatever problems you’ve gotten into. But you have to take action TODAY. You have to START or else you’ll never get out of the mess, get rid of the problems, and leave the mistakes behind. And even if you’re there, I can show you how to keep from making even more mistakes.
DON’T LOSE HOPE. Now, let’s take a look at the 37 biggest financial mistakes and how to avoid them!
The 37 biggest financial mistakes (and how to avoid them)
1. Not paying attention to your finances
The single biggest financial mistake that you can make is not paying attention to your finances. But I get it…if you just live life and never pay attention, you’ll never notice your mistakes and you won’t have to deal with your finances (or so people think).
This immaturity and lack of discipline might go unnoticed for awhile. But eventually, your poor finances will catch up to you and force you to take action – sometimes in the most unpleasant of ways. And down the road, if you never deal with the mistakes, you’ll be broke, in debt, and forced to continue working into your retirement years.
How to avoid this mistake: this one is super easy. Start paying attention to your finances. Take responsibility for any past mistakes and start learning about your personal finance situation. If you do that, you can be successful with your money.
2. Not having a financial plan
Even if you’re paying attention to your finances, you could be destroying your ability to be successful with your finances by not having a financial plan. You can be the best budgeter, saver, and investor, but if you have no plan, you’re doing all of those things just to do them. You’re not planning for the future.
But most people don’t pay attention OR plan for their future. Instead they do the complete opposite of what you should do and then complain when their finances are an absolute wreck.
How to avoid this mistake: get onto some kind of financial plan. We recommend the following:
- The Dollar Dollar 10-Step plan – similar to the Ramsey baby steps plan with added in motivation and goals. Check that out here.
- The Ramsey Total Money Makeover and Baby Steps plan – this is what my wife and I currently use. Check that out here. You can also check out my post, “I’m Debt Free! The 7 Dave Ramsey Baby Steps Explained,” here on my site.
- Any other financial plan as long as it encourages getting out of debt and building wealth.
So don’t make the mistake of not having a financial plan! Get on a plan as soon as possible.
3. Not having a BIG reason WHY
Not having a BIG reason WHY you’re trying to improve your finances can be detrimental to your plan. Because if you don’t, you’ll soon fall back into bad habits.
This is exactly what happened to me. I got completely out of debt just to get out of debt. Pretty soon, I found myself back in the hole and working my way out of debt again. But this time, I found a new reason why.
Here’s my BIG reason WHY: I’m sick of debt, tired of being broke and having nothing, sick of not being able to afford anything, sick of a negative net worth, my wife and I want to travel one day, I want to help my son go to college without loans, and my wife and I want to be a millionaires.
How to avoid this mistake: my why is deep. I’m doing everything for my family and my legacy. Now it’s your turn. What do you want? What is your BIG reason WHY? Find the reason why you’re trying to improve your finances and make sure it’s HUGE!
4. Not having financial goals
This can be an incredibly huge financial mistake to make. Just like not having a BIG reason WHY, if you don’t have any financial goals in your life, what are you doing any of this for? Are you working your butt off everyday just to spend it all and have nothing? No, you’re trying to make progress with your money.
How to avoid this mistake: start thinking about some short-term, medium-term, long-term, and legacy financial goals. If you’d like to learn more about this, check out my post – “How to Make More Realistic Financial Goals This Year!”
5. Not paying yourself first
Whenever you’re handling your finances, you should be paying yourself first. The concept is simple – out of the money you make, the first small chunk of money needs to be saved, invested, or used to pay off debt. If you’re not doing this, you’re making a big financial mistake.
Because as the great billionaire investor Warren Buffett once said, “don’t save what’s left after spending, but spend what’s left after saving.”
How to avoid this mistake: save, invest, or pay off debt first. Spend last.
6. Not paying off debt!
This is one of the biggest financial mistakes that you can ever make. Because debt robs you of your hard earned money and keeps you from building wealth. Keeping it around for decades can be disastrous for your finances and your sanity.
How to avoid this mistake: don’t let debt hang around like a freaking pet. There’s no reason. Get out of debt as fast as you possibly can and don’t look back. It feels incredible to have ZERO DEBT.
Here are a couple of posts that can help you get out of debt:
7. Not investing for retirement
Not investing for your future can absolutely crush your dreams of retirement. You will retire one day, so you have to have a nest egg! But most people put it off, then wonder why they have nothing for retirement.
How to avoid this mistake: get all debt paid off and start investing 15% of your income. Just $200 bucks a month invested from age 20 to age 60 at 10% percent rate of return will be worth $1.1 million dollars. So start investing TODAY.
8. Not having the proper insurances in place
Not having the proper insurances in place can be a terrible financial mistake if something bad were to happen to you or your family.
If you don’t have health insurance, you could be paying tens of thousands in hospital bills if you go to the emergency room for anything serious. No car insurance? Imagine being sued and losing after you accidentally hit and injure someone in a car accident.
Now imagine that your spouse passed away from that car accident. What happens now? You lost your partner, their income, and you have to pay $10,000 dollars for a funeral. If you don’t have life insurance, you’re going to be left with a huge hole in your life, your heart, and your household income. Obviously you never want this situation to happen. But that’s why you get the proper insurances in place…just in case.
How to avoid this mistake: make sure you have the right coverages of health insurance, car insurance, life insurance (if you’re married/have kids), and disability insurance (if you’re married/have kids). If you just have those simple insurances in place, you’re keeping yourself and your family in a great position to be protected and to continue improving your personal finances.
If you’re looking to get your insurances in place, get up with the great people at Zander Insurance here on their site.
9. Not having identity fraud protection
Now you don’t absolutely have to have identity theft protection. And to date I’ve never had my identity stolen. But I’ve still got ID Theft protection for my family through Zander Insurance just in case. Because I’ve heard horror stories from friends about money being stolen and accounts being hacked. It all sounds horrible and I don’t want to ever go through that without any protection. You don’t have to have this, but I believe it’s a big financial mistake if you don’t.
How to avoid this mistake: pick up some family identity theft protection from Zander Insurance here for super cheap – we pay around $12 per month total.
10. Not having a budget
You NEED a budget. Because a budget allows you to control your money instead of your money controlling you. Not having a budget can ruin your finances if your spending gets out of control. So don’t let that happen.
How to avoid this mistake: create a budget and learn how to control your spending. If you need help with budgeting, check out the following posts below ⬇️:
11. Not having an emergency fund
If you don’t have an emergency fund, you’re leaving yourself exposed to any and all emergencies that are going to come your way. I’m not trying to put any bad juju on you, but emergencies are GOING to happen. That’s why you need to have a “rainy day” fund in place. Because it’s GOING to rain. So are you going to be ready with your emergency umbrella or are you going to be completely exposed to the rain? That’s up to you. Emergency funds are extremely important. You need to have one in place so that you, your family, and your finances are protected.
How to avoid this mistake: build up a small $1,000 emergency fund, get your debt paid off, then build up a strong 3-6 month fully-funded emergency fund.
Here are 3 posts to help you out with your emergency fund:
12. Going back into debt (the debt cycle)
I hate debt. I’ve been wrapped up in the debt cycle twice now. And it sucked both times. So I’m not doing it again. Because I hate debt. So get out of debt and stay out of debt.
How to avoid this mistake: don’t go into debt for any reason. If you’re in debt, get out as fast as possible. Then, never go back.
13. Paying the wrong debt first
Another huge mistake while paying off debt is paying off the wrong debt first – specifically, trying to pay off high interest rate debt (the debt avalanche) instead of starting with the smallest debt and working your way up (the debt snowball).
Look, if you’re getting your debt paid off, that’s fantastic. I won’t knock your effort thus far. But if you’re paying on debt with the highest interest rate, it might take you awhile.
So list your debts smallest to largest and start attacking the smallest debt with a vengeance. Once you pay it off, move to the next smallest debt, then the next until you pay everything off. Starting with the smallest debt will give you quicker wins and more motivation to continue with the plan to get out of debt.
How to avoid this mistake: use the debt snowball method of paying off debt, list your debts out smallest to largest, and get them all paid off as fast as you possibly can.
Check out this post for more – “Highest Interest Rate vs. Smallest Balance: Which Debt to Pay First?”
14. Missing out on the employer match
If you’re missing out on your company’s 401(k) match, that’s a huge, yet easily correctable mistake. We still recommend, though, that if you have debt, get it paid off as fast as you possibly can. That way you can start investing a nice chunk of money with this match. It’s okay to not get the match and pay off debt for a very short period of time. Once debt is gone, take that match and invest more.
How to avoid this mistake: you pay off debt, then personally invest 15% percent of your gross income into your employer’s 401(k). If the funds inside of that account suck, invest up to the match (for example, 5% percent) and invest the rest (the other 10% percent) into a Roth IRA.
15. Buying a home when you can’t afford it
If you’re in debt, and you don’t have at least 10% percent saved up for a home, you can’t afford to buy. You don’t need to be buying right now because you’re broke and you don’t have the money to buy a home. I want you to buy a house but I don’t want it to be a burden or a nightmare after you buy it.
How to avoid this mistake: get out of debt, save up a down payment, and see our home-buying requirements in mistake #17.
16. The home equity scam
Taking out a “home equity loan” or “home equity line of credit” is a horrible financial mistake. When you borrow money with this type of loan, you’re borrowing against your home. And you’re putting yourself at even more risk…by using your home’s value to allow you to borrow money for stupid purchases. You should NEVER EVER borrow money against your home. It’s a terrible idea and you shouldn’t ever do it.
How to avoid this mistake: DON’T BORROW MONEY AGAINST YOUR HOME. No home equity loans or lines of credit. You’re trying to get your home paid off, not owe even more on it.
17. Buying a huge house (or renting expensive apartments)
Another huge financial mistake? Buying a huge house or renting an expensive apartment when you don’t really need it.
Renting when you first start out is smart because you’re only responsible for rent and utilities. Everything that breaks will get fixed by owner or the property manager. But if you’re paying an outrageous amount of money for a super nice apartment just because, that’s dumb. Your rent should be no more than 25% percent of your take home pay so that you have extra money for your financial goals.
That same percentage applies to houses. When buying a home, I recommend that you get out of debt first. Once you do that, save up at least a 10% percent down payment and only borrow what you can afford – a 15-year fixed-rate mortgage that’s no more than 25% percent of your take home pay.
How to avoid this mistake: only buy or rent based on the percentages above. If your rent or mortgage is more than those percentages, it’s going to be very hard to make progress with your finances.
18. Buying new cars (or leasing)
It absolutely blows my mind how many people just continuously buy new cars. I mean, new cars are usually pretty awesome and they’re always filled with fancy new tech gadgets. But here’s the thing: new cars are always expensive. And ordinary, everyday people don’t have the money in cash to buy new cars. So they finance the purchase and go deep into debt just because they want it. That’s a horrible financial mistake.
With the average new car price being $648 dollars, according to thezebra.com’s post here, that’s a serious chunk of money. On top of that, the car insurance on a new car is going to be more expensive as well. So that brand new car is costing you some serious money every month. Don’t fall for this trap. Because you’ll end up broke and in debt.
How to avoid this mistake: DON’T EVER BUY A NEW CAR unless you have a net worth of more than 1 million dollars AND the money saved up in cash. Instead, try saving up the money and buying a nice, low-mileage, 2-4 year old used car with cash. Here’s the crazy part – if you pay cash for your vehicles and simply invest that $648 dollars per month for 30 years, you’ll have A LOT of money.
$648 dollars invested in mutual funds for 30 year (with a 10% percent rate of return) will be worth over $1.4 million dollars. So I really hope all those new cars were worth it.
19. Trying to keep up with the Joneses
You know the Joneses. They’re the family that seems to have it all – nice cars, the latest tech gadgets, brand new furniture, a big, beautiful house, and a HUGE TV. They look great on the outside, but they’re a financial wreck on the inside. The Joneses are in debt up to their eyeballs and are one job loss or big emergency away from losing everything.
I have a friend who has been going down this path for years. They look great on the outside, but every time some small emergency happens, it’s always a crisis. Because his family is broke, so they continue to live the way they’ve always lived and they continue trying to out-earn their stupidity.
How to avoid this mistake: don’t be like the Joneses. Be happy with what you have and save up to pay cash for everything you want. Pretty simple, right?
20. Not living below your means
If you’re currently spending more than you make, or “living ABOVE your means,” that is a gigantic financial mistake that you need to fix right now. Because by spending more than you’re earning, you’re slowly going deeper and deeper into debt. That’s incredibly dangerous, because most people don’t even realize what’s happening until you’re tens of thousands of dollars in debt, completely broke, and on the verge of bankruptcy.
How to avoid this mistake: get on a written budget, learn exactly how much money you bring in every month, and work on spending less than that amount. That’s called “living BELOW your means.” That’s how you fix your finances and win with money.
If you’d like to learn how to live below your means, check out this post – “How to be Frugal: The 57 Habits of Thrifty People.”
21. Frivolous spending
This runs along similar lines as the last mistake, but involves overspending to the extreme. Frivolous spending is a big financial mistake and can destroy your finances over time. It can also ruin your chances of being wealthy and retiring with dignity.
How to avoid this mistake: cut down your spending by using a budget to track expenses, make sure you’re out of debt, then start giving yourself a limit on how much you’re allowed to spend every month. In our budget, we put a category in called “fun spending” where it’s just money we can spend on whatever we want. We give ourselves a budget limit amount and stop spending for the month if we hit that amount.
22. Not saving up for stuff
Another huge financial mistake – that runs along similar lines as the last 4 mistakes and the next 3 after this – is not saving up for the stuff you want to buy. My motto is: “if you can’t pay for it in cash, you can’t afford it.” So you don’t need to buy that item. If it’s something you really want, you need to save up for the item until you can pay cash.
How to avoid this mistake: don’t finance anything. If you can’t pay for it with the money you have, you can’t afford it. If you want to buy something, and you don’t have the money for it, you need to save up the cash to buy the item or don’t buy it at all.
23. Having too much stuff
Pretty similar to the last mistake on this list. The sheer stupidity of overspending and financing everything usually causes people to have way too much stuff. Don’t be this person. Because having too much stuff usually means you have no money.
How to avoid this mistake: live below your means and only pay cash for things that you want to buy. If you do both of those things, you won’t have too much stuff.
See our post here on “57 Things You’re Wasting Money On: This Can Save You Thousands!”
24. Allowing “lifestyle creep”
“Lifestyle creep” is when you allow your household expenses to continue growing as your income continues to grow. For example, in college, you’re usually broke with no income and no real expenses. When you get your first job making $30,000 dollars, instead of living on nothing like you were used to, you inflate your lifestyle and start buying more and more stuff. Then, you get a raise to $50,000 dollars and start increasing expenses again since you have more money. By doing that, you’re allowing your lifestyle to “creep up,” or become more expensive. Don’t do that.
How to avoid this mistake: don’t continue allowing your lifestyle to get more and more expensive as you make more money. Live on less than you make, get out of debt, and continue to try and do well with your finances.
25. Continuing to live paycheck to paycheck
If you allow yourself to continue living paycheck to paycheck for years, you’re living one of the biggest financial mistakes of all time. I get that personal finance is tough, budgeting isn’t easy, and things just continue to get more expensive as time goes on. But this is where you have to put in the work if you want to win with money. If you’re living paycheck to paycheck, it’s time that you do something about it.
How to avoid this mistake: check out this post, “Living Paycheck to Paycheck? 10 Steps to Break the Cycle!” Use it to help you get out of debt and stop living paycheck to paycheck.
26. Not asking for help
Look, this personal finance stuff is hard. And everybody has their own unique situation. So if you need help, ask for it. That’s one of the reasons why I started this site – to help other people learn what I’ve learned. I remember needing a lot of help when I started. But I asked for help and others helped me.
How to avoid this mistake: don’t be afraid to ask for help when it comes to your personal finances. You can reach out to me anytime at dollardollarnowofficial@gmail.com.
I’ll also encourage you to check out other posts here on my site. We’ve got a lot of great content just ready to be read. Head to our main page here for more!
27. Thinking a credit score actually matters
If you worship the almighty FICO score, I’m here to tell you that your credit score is nothing but a load of crap. That score that they give you is worthless. The credit score is just a score to tell creditors how good you are at borrowing money and paying it back. They give you a score so that you can borrow money and pay it back so that you can borrow more money and pay it back so that you can borrow more money and pay it back. It’s a cycle of stupidity that usually traps people under a mountain of debt.
Besides, you don’t need a credit score to do all of the following – get a mortgage, rent a house, apply for utilities or cell phone plans, or buy a car (with cash). You’ll just need to have money in the bank and a short employment history that the company can verify. Pretty simple, really.
How to avoid this mistake: cut up your credit cards, get out of debt, pay cash for everything, and live below your means.
Check out this post for more – “17 Great Ways to Pay Off Your Credit Card Debt Right Now.”
28. Playing the credit card point game
Just like the almighty FICO credit score, credit card reward points are just as scammy. It’s all a game to the credit card companies. That’s why it’s called a credit “score” and that’s why they give you “reward points.” You’re playing the game. You pay a lot of money in credit card payments, they give you a few points, and in the end, they win. They get rich and build skyscrapers while you end up deep in debt.
How to avoid this mistake: don’t play the credit card reward point game. It’s a game that you can never win. Instead, cut up your credit cards, get out of debt, and start paying cash for everything that you want to buy. If you want to win, avoid credit cards and start working on building real wealth. Because credit cards aren’t the answer.
For more, check out this post – “7 Mind-Blowing Reasons Why Credit Card Reward Points are Bad.”
29. Keeping a dead end job (your whole life)
This is a huge pet peeve of mine that I’ve had for a long time – people keeping dead end jobs that they hate! Why would you do this to yourself? If you really hate the job you’re in, go find another one. That’s what I’ve done all throughout my life. I’ve had a lot of good jobs. And I’ve had a bunch of crappy ones.
Whenever I hated a job, I quit it. But before you quit, you need to do a couple of things: continue working hard until you leave, find another job first, try not to burn any bridges, and give a 2-week notice. You never know when you’ll need a reference, so it’s better to leave that crappy job on good terms (instead of just quitting and not showing up).
How to avoid this mistake: if you hate your job, find a new one. Period.
30. Getting a 30-year mortgage
Getting a 30-year mortgage isn’t the worst financial mistake that you can make, but if you commit to a 30-year mortgage, you’re going to be wasting tens of thousands of dollars in interest charges. Yes, with any mortgage, you do have to pay interest. But with 30-year mortgages, you’ll be paying A LOT more interest over the course of the first 10-15 years.
How to avoid this mistake: don’t waste all of that money! Only take out a 15-year mortgage or less (15-year fixed rate mortgage with payments at no more than 25% of your income). You’ll be paying significantly less in interest during those 15 years and actually be making good progress toward getting your home paid off.
31. You don’t teach your kids about money
Not teaching kids about personal finance and managing their money correctly is both a huge financial mistake and a huge parenting fail. To be fair, though, most parents aren’t very good with their finances, so the thought of teaching kids how to do well with money is completely out of the question.
How to avoid this mistake: kids need to learn proper money management so make sure your finances are in order, that way you can both teach kids and show kids how to win with their finances when they get older.
32. Not investing in your kid’s college fund
If you’re committed to no debt and changing your family tree like I am, you won’t be making this next huge financial mistake. Most families these day are broke, in debt, and only focused on today. They’re not thinking about tomorrow. So they overspend, don’t save, don’t invest for themselves, and definitely don’t invest for their kid’s college.
But not saving up at least a little bit of money for college all but guarantees that people continue to take out student loans. Don’t make that mistake. A simple $100 dollar per month investment into a College 529 plan with mutual funds over the course of 18 years (with 10% percent rate of return) will be worth over $60,000 dollars!
It may not pay for an entire 4-year degree, but it’s a pretty good start for your kid’s education.
How to avoid this mistake: start up a 529 College Savings Plan for your kid to help pay for college.
33. Eating out too much
Eating out too much can really put a dent in your finances. Back when I was undisciplined with money, I used to spend hundreds of dollars per month (about $300-400 dollars per month or more) eating out. And a few weeks ago, a buddy I just talked to about eating out said that him and his family spend over $600 dollars per month on fast food! That’s $7,200 dollars per year!
How to avoid this mistake: try to cut back on eating out by using a budget, tracking your fast food costs, giving yourself a limit on how much you can spend on fast food, and doing everything you can to save money in this budget category.
34. Paying full price for everything
If you’re the kind of person that always pays full price for everything, that’s a huge financial mistake. There are a lot of things that you can buy used or discounted that can save you a lot of money.
How to avoid this mistake: try to save money everywhere you go. Make it your mission to save money or get a discount on every single item you buy.
35. You have too many streaming subscriptions
So this financial mistake isn’t going to break the budget or ruin your finances, but it can cost you thousands of dollars over the years if you make it. I want you to take a look at how many streaming services, subscriptions, and monthly services you’re signed up for. Depending on how many you have, those monthly charges could be really adding up.
How to avoid this mistake: cut down on some of your subscriptions to save at least a little bit of money. You don’t want to waste a bunch of money when you’re probably not using most of those subscription services anyways.
36. Paying too much for kids toys and clothes
This isn’t the worst financial mistake that you can make, but kids clothes and toys can really add up over time. The first 2-3 years of my son’s life, we rarely bought him new stuff. Because kids DON’T CARE. They’re just happy to have food, clothes, toys, and parents who love and play with them. To date, in just over 3 years, we’ve probably spent a couple thousand dollars on clothes and toys. If we would’ve bought everything brand new, we would’ve spent 10 times that amount.
How to avoid this mistake: find creative ways to buy kids clothes and toys gently used. Ask family and friends for clothes (or buy them for a few dollars), find consignment shops, and use Facebook Marketplace porch pickup. You will save A LOT of money if you just put forth the effort to find nice, used stuff for your kids.
37. You lend money to friends and family
Even though this is the last financial mistake on this list, it doesn’t make it any less important. Because lending money to any friends and family can cause strain on relationships and tension among family members. I’ve personally lost a great friendship over a few hundred dollars. And almost another a couple years later. After that, I didn’t let any other friends or family borrow money ever again.
How to avoid this mistake: NEVER NEVER NEVER lend money to friends and family. If you want to GIVE someone a few dollars when they need help, that’s perfectly fine. But borrowing money from you should be a no-no.
Finally
So that’s the list. 37 of the biggest financial mistakes that you can make. Hopefully, this list has helped you learn what NOT to do with your finances. Because there are a lot of mistakes that you can make.
But don’t be discouraged if you’ve already made a few financial mistakes. Because we all have. It’s what you do from here on out that really matters.
Related content
The Ultimate Guide: 30 Money Moves to Make Before You Turn 30
17 Financial Lessons You (Really) Need to Learn This Year
How to Go to College 100% Debt Free in 17 Easy Steps
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