One of the major problems with a rapidly changing economy is that people tend to panic and make some very common money mistakes, while trying to adjust their budget for inflation. These financial missteps can have a negative impact, leaving you focusing on the wrong things.
However, the good news is that once you become aware of these mistakes, they can be fixed. It is possible to save money, even in a tight economy.
Here are ten common, but critical, financial mistakes along with the solutions to remedy them.
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1. Not Planning Specific Goals
Balancing your budget is becoming increasingly difficult. Constantly rising prices mean that you may need to make changes to your budget far more frequently.
When budgeting is challenging, the first thing people tend to think about is cutting expenses and saving money. Although that’s not necessarily a bad thing, a far more important task is setting specific, prioritized goals for your money.
If you don’t know the purpose for your savings, you will spend it. That’s why it is important to create a list of short-term (1-2 years), medium-term (3-5 years), and long-term (5+ years) goals.
For example, saving for a vacation might be a short-term goal, buying a home could be a medium-term goal, and retirement planning would be a long-term goal.
Writing your goal list with the most important goals at the top, will help you maintain focus and reach your goals faster and easier. To set effective goals, use the SMART criteria (Specific, Measurable, Achievable, Relevant, Time-bound).
It’s helpful tovisualize goals like stair steps. Monthly goals are written to reflect the progress you’re making on quarterly goals. While weekly goals are quick, easy steps which help you make progress on that month’s financial goals.
By writing goals in this manner, you always know what to work on next and you also understand how each goal effects all your other goals. Be sure to revisit and adjust your goals regularly as circumstances change.
2. Not Looking Around for Options and Alternatives
One of the money mistakes people make is getting used to blindly paying bills. They simply continue to pay it without exploring better options. Regularly reviewing and comparing prices for services and products can ensure you’re getting the best deal.
This might involve switching providers or negotiating for lower rates to save money.
Part of the reason we hesitate to make a switch is that we don’t want to sacrifice quality. There are certain things that are important to your lifestyle.
Great cell phone service comes top of mind.
Surprisingly, one of the easiest switches for us to make was our cell phone provider. For many years, we overpaid for our cellular service every month. The problem was, we didn’t know what else to do. When a friend suggested Mint Mobile, we were intrigued. We checked it out, switched, and we’re happy we did.
Mint is our partner for this post.
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3. Living Paycheck to Paycheck
We lived paycheck to paycheck for quite a while. It was not fun. I still remember the constant low-level anxiety, waiting to see if we would run out of money before the next payday.
Spending every penny on basic needs each month can be risky.If unexpected expenses arise or prices increase, you understand that you are so close to the edge that you could easily topple over a financial cliff and slide into debt that is hard to climb out of.
As with many other money mistakes, we had to learn to track our expenses, cut unnecessary costs, and find additional sources of income.
Building a financial buffer, also known as an emergency fund, by saving a small percentage of each paycheck provided relief and a real sense of hope. We realized that we could be in control of our money – instead of letting circumstances control us.
4. Not Looking Down the Road
Once we managed to figure out figured out how to create a spending plan (budget), the very next thing we did was save up a little cash. Unfortunately, because we had no clear financial goals, our nest egg was soon spent.
Today, we call this very common error, “The Big Green Pile of Cash Mistake”. When you aren’t looking down the road at the next item which you need to fund with your savings, you will soon spend the cash you’ve managed to stockpile.
The solution is to always “give each dollar a name”. If there’s a name on it, you won’t spend it. Thanks to this commonly repeated advice from Dave Ramsey, we learned that lesson and never forgot it.
5. Buying Things You Don’t Need
Unnecessary purchases can derail your financial goals very quickly. Consumerism, which is reinforced by seeing advertising at every turn, influences your spending habits. Impulse buying and financial instability go hand in hand.
Practicing mindful spending and distinguishing between needs and wants can help you avoid these pitfalls. Consider creating a waiting period before making non-essential purchases and determine if that purchase is a necessity.
6. Not Paying Off Debt
Carrying debt can be dangerous. Interest accumulates quickly and if you are just paying the minimum amount each month, you’ll be saddled by that debt for years. Ultimately, you’ll wind up paying back over twice the amount which you originally borrowed.
One of the most effective ways to pay off debt is to create a debt snowball. In this method, you list all of your debts in order from smallest to largest. You make the minimum payments on all of them, except the first debt on the list. You throw extra money at that debt in order to pay it off quickly.
This can involve cutting back expenses to save additional money, taking a side gig, or working extra hours at your current job. Selling unneeded items can also bring in additional funds to pay down debt.
After the first debt is paid off, you begin applying all extra money each month to that debt. You gain momentum as you work your way through your debt list, paying off one at a time.
Being debt-free truly does give you long-term financial freedom and peace of mind. However, after 26 years of being debt free, we found the main advantage was the option of being able to consider alternatives, which few people had in our income bracket. The result was that even though we didn’t make much money, we were able to reach big financial goals.
7. Not Reviewing Your Budget and Goals Often Enough
Financial goals and a budget are never “set it and forget it.” It’s not like programming a crockpot to cook for a certain length of time and then returning home hours later to find a fresh, hot dinner waiting for you.
Life changes, such as a new job or having a baby, impact your financial plans. It’s absolutely crucial that you stay attentive and adapt when necessary. In order to reach goals, you must regularly check progress and make adjustments, especially when prices are rising and the economy is tight.
Regular financial check-ins are necessary to stay on track. We used to meet every quarter to review our budget and financial goals. With recent changes in the economy, we now meet once a month.
Set monthly or quarterly financial reviews, use tools and apps to track your progress, and make necessary adjustments to your budget and goals.
8. Not Having an Emergency Fund
An emergency fund is essential for financial security and is, unfortunately, one of the most common realities for many Americans. Without a financial bumper, common emergencies, such as medical bills or car repairs, can leave you heading to the nearest cash advance business, whipping out a credit card, or asking friends or family members for a loan.
An emergency fund alleviates the need for panic. Start with a goal of $1,000 and gradually increase it to cover 3-6 months worth of living expenses. To avoid this money mistake, not having a money cushion, build your emergency fund by setting aside a portion of each paycheck.
9. Keeping Up with Current Trends
Of all the money mistakes we are addressing, this is the easiest to fall into. My grandfather used to tell me,” The problem with keeping up with the Joneses was that each time you get near, they refinance again and leave you in the dust.” It may be an old saying, but it’s true.
His wisdom centered around never assuming that people are as wealthy as they appear. The very people you are admiring and attempting to emulate, may be hip-deep in debt and taking on more loans as they acquire more “stuff”.
The pressure of keeping up with the latest trends can lead to financial strain. Social media and peer pressure heavily influence spending habits, causing people to chase trends and spend way too much on things that just don’t matter.
It’s important to be content with what you have and make thoughtful, deliberate purchases. Set personal financial priorities that align with your long-term goals rather than societal expectations.
10. Avoiding or Ignoring Financial Decisions or Problems
Procrastination in financial matters can have severe consequences. Face your finances head on. Avoidance nearly always leads to increased anxiety, while the situation just gets worse.
Addressing financial issues immediately and making informed decisions can significantly benefit your financial, mental, and physical health. Take small, manageable, deliberate steps to tackle financial problems, and seek professional advice if needed.
Avoiding these ten money mistakes can significantly improve your financial health and mindset.
Your turn!
Share your own money mistakes and tips in the comments below.
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People always say you should “save for retirement”. I’m retired now and don’t need to save for anything, except for unexpected things. One thing you haven’t mentioned is death! Everyone will face it someday! My husband and I bought cemetary plots about 5 years before he passed away… so thankful for that. Check into the options available… burial, cremation and how much your choices will cost. Talk with a mortician. Also consider life insurance and how much you should have. This is not a “creepy” subject; it’s reality. I love your channel and have watched for years. I wish I’d had all this advice when I was younger.
Great point.
Great article. I think that most people struggle to correct money mistakes because they have no financial literacy. And they have to hit rock bottom before they start correcting their bad spending habits.
It definitely helps to read a lot of books and articles about personal finance.
Agree financial literacy needs to start in school!