21 Worst Personal Money Mistakes to Avoid Right Now
Everybody makes money mistakes from time to time. If you have any financial regrets, know that you are not alone. It is okay to make a poor financial decision sometimes; after all, no one is perfect or knowledgeable enough to see the exact outcomes of their actions in advance. However, if you consistently make poor financial decisions, are unable to account for your cash flow, or your credit score is deteriorating, it reveals a big problem. At this point, you need to get help.
In this article, we will show you the most common money mistakes people make. You will learn what keeps some people in poverty and prevents them from achieving their financial goals. We will also show you how to avoid such mistakes. You can apply these principles in any season, including during high inflation. Learn all the lessons and take charge of your finances.
1. You Refuse to Ask for Help
Some people struggle with controlling their finances because they refuse to ask for help. Personal finance can be a very private topic; we understand this. But when you are unable to manage it properly, it is wise to ask for help. You can meet with a trained counsellor or consult a financial professional for advice.
If you cannot discuss your financial situation due to privacy concerns, you can always ask Google for existing general guidelines—you probably found this post by googling. No matter how you arrived here, the most important thing is that you are now ready to get help. So, try to obtain as much information as you can by reading all the mistakes and the ways we have provided for you to avoid them.
For more information about getting financial help, you can browse our blog to read in detail any topics relevant to your situation (if we have written about them). Basically, you need to know the various ways you can optimise your cash flow, which means ensuring that your income is greater than your expenses. For example, you can start by learning effective personal budgeting methods on our website.
2. You Don’t Take Time to Evaluate Things
Critical evaluation is an important skill for money management. Here, we are talking about being able to examine situations and ask relevant questions about them. A few examples of questions that can help you evaluate your personal finances are:
- Are you paying too much on bills when you can cut down on your consumption and pay less?
- Do you need to switch from buying luxury goods to normal goods?
- Is your salary now too low for your current qualifications?
- Should you sell property that you no longer need to avoid paying taxes on them?
- Should you be making money off your cryptocurrency?
- Can you avoid paying crypto tax?
- Are you using the best credit cards for your shopping payments and travel expenses?
People who do not take time to evaluate (and re-evaluate) their income and expenses will not be aware of where they are making the wrong financial decisions. Therefore, to avoid personal money mistakes, it is important to take time to evaluate everything that has to do with your finances. You do not necessarily have to do this daily; it could be a weekly, fortnightly, monthly, or quarterly exercise.
3. You Don’t Like to Make Changes
Staying put in an unpleasant or unnecessary circumstance can be bad for financial prosperity. Life is full of changes, and being flexible is a good way to not only cope with difficult situations but also overcome them.
Always evaluate the state of things and make the necessary changes. For example, you should not continue to pay for an apartment with so much space that you do not need anymore. You probably rented it while you were living with some members of your extended family, but they have now moved to their own apartments, leaving you (and your nuclear family) to have all the space. It may be better to get a cosy place, for which you will have to pay less in rent and bills.
4. The Fees You Pay are Too Many
Another personal money mistake people make is paying too much in fees. They keep several bank accounts and credit cards for which they are charged maintenance fees, various transaction fees, and interest. If that is your case, you should close all accounts and cards that you no longer use.
Another smart way to reduce your fees is to switch banks. This could allow you to earn more money from savings and pay lower fees. You can switch from a traditional bank (which typically charges high fees) to a neobank or a bank with zero ATM fees. Moreover, cryptocurrency holders can switch to crypto-friendly banks with free services as a way to reduce their fees on fiat money accounts.
Concerning fees paid on credit cards, you can get a low-interest credit card or a better alternative with 0% interest. One more piece of advice we can give in this regard is to avoid common mistakes when using credit cards, such as making late payments on the credit card. By doing so, you will significantly reduce your fees.
5. You Don’t Care About Your Credit Score
Failing to care about your credit score is a terrible mistake—you should avoid making it. Why is that necessary? It is because your credit score is one of the factors that most financial institutions, including banks and fintech companies, use to determine your eligibility for a credit card or personal loan. So, it is helpful to have a good or excellent credit score in popular credit rating systems like FICO and VantageScore. Also, there are some credit cards you can get without a good credit score, but they often come with little or no perks and are primarily meant to help you build your credit.
6. You Have No Plan for Your Debts
Living debt-free is a goal for many debtors, but it can often seem difficult to achieve. Hence, many people are used to carrying large amounts of debt, which can be a low-interest mortgage or a credit card with a high-interest rate. What makes the situation worse for most of them is that they do not have debt repayment plans. And this is a terrible mistake!
Being debt-free brings a great sense of freedom and peace of mind. This status is achievable, and you should work towards it. The way forward is to create a debt repayment plan and follow it diligently. Read our post on how to pay off credit card debt for more information.
7. You Don’t Save Money
Some people work so hard to make money but spend it all instead of saving. This is a big mistake! Aside from spending your money on food, clothing, housing, transportation, education, and other needs, it is also good to pay yourself by depositing a portion in your savings account.
There is a 50-20-30 personal budgeting rule that says half (50%) of your income should be spent on your essential needs, while the other part should be split between your savings (20%) and wants like entertainment and vacation (30%). Try it and see the outcome. Besides, keeping a savings account is a wise way to ensure that there is money for emergency expenses like medical bills, home repairs, unexpected travel, and living costs during a sudden job loss.
8. You are Afraid to Ask for a Raise
Do not make the mistake of being afraid to ask for a salary increase, especially when you think you are qualified for it. Saying that your company will remember to increase your salary is an assumption that might never happen. If you are lucky, you could get a surprisingly cheap 2% increase instead of the big raise that comes from asking for the amount you would like to be paid. So summon some courage and ask for a raise in your take-home pay. Get ready for a negotiation meeting with the human resources officer at your workplace. Good luck!
9. You Refuse to Change Jobs
Asking for a raise and getting a nice salary increase is good. But do not make the mistake of thinking that there are no better jobs out there for you. Yes, the market is very competitive, but you can never tell how lucky you could be to land a higher-paying job if you do not apply for open opportunities.
We are not asking you to resign to find a new job; do it while maintaining your current job. Update your credentials and CV (or resume) and put yourself in front of recruiters, highlighting your skills, experience, and achievements. May fortune smile on you!
10. You Cosign Loans Carelessly
Co-signing a loan for someone is a generous act, but it is not without risk. You should not make the mistake of doing it for everyone who asks for it, even if you have the best intentions. Some people are not good at paying back debts. If they default, it will not only negatively affect your relationship with them but could also hurt your credit score. Therefore, try to avoid co-signing a loan. If at all you want to help them, ensure that the person has a good credit history. Also, do not cosign a loan that you cannot afford to pay if the debtor defaults.
11. You Lend Money to Any Borrower
Similar to co-signing a loan for someone who is not creditworthy, lending money to just anyone can be a costly mistake. Of course, the people who are most likely to ask you to lend them some money are those who are very close to you. While you may want to show them that you care, you should not lend any money you cannot afford to lose. An alternative is to try not to be the lender. You can help them connect with a personal loan provider.
12. You Always Pay the Full Price
You do not always have to pay the full price for everything you want. Instead, you can search for discounts and buy-now-pay-later offers at stores. For example, when you use credit cards for Black Friday and Cyber Monday, you will get cashback and other perks in addition to huge seasonal discounts. Also, with BNPL apps, such as Klarna and Clearpay, you can buy an item today and pay for it in about four instalments spread across two or more weeks.
13. You Don’t Have Insurance
Nobody prays for something bad to happen, but it is wise to anticipate an event that could lead to a loss and have a plan for cushioning its effect. The best way to minimise the cost of fixing an unfortunate event is to buy the relevant insurance policy, which could include health, life, car, house, fire, or travel insurance. For example, getting a health insurance policy will help reduce the cost of your medical care, safeguard your family, and manage rising costs related to various aspects like doctor’s consultation, treatment, ambulance charges, diagnosis tests, and medicines.
14. You Spend Too Much Money on Your Kid
It costs a lot of money to raise a child in any part of the world. But a common mistake that some parents make is to fail to cut down on this cost. It does not in any way show that you do not love your child if you spend less money on buying clothes that they will outgrow in a short time. Here, we are talking about buying cheaper clothes rather than expensive ones. Also, you can buy fairly used toys or get some from friends instead of brand-new ones.
15. Teaching Your Kids About Money is Not Your Duty
Even if your children attend the best school in your city, it is still your responsibility to teach them about personal money management. You should start the lessons as soon as they are about three years old. By doing so, they will most likely grow up to become adults who know how to manage money. Besides, if your kids always want to buy everything they desire—whether they need it or not—the responsibility will fall on you to take care of the costs. In the end, you will be spending much more than you ought to.
16. You Don’t Save Towards Your Retirement
Being sure of having money to spend in the long term is more valuable than many short-term wants. Even a little amount saved for your retirement is important, especially if you start saving early in your career. Do not make the mistake of not planning for your retirement today, as some do with the excuse that they might not live long. What if you live for many more years?
Some people also claim that they cannot save enough for the big difference in retirement costs. Do not believe them; try to get a retirement or pension account now. Try to contribute 10% or more of your salary, plus any employer contributions, to a tax-free retirement plan like a 401(k) or IRA each year, and it will surprise you how much you would have invested towards life after your career.
17. You Spend Your Retirement Fund Beforehand
Another terrible financial mistake that people make is to spend their retirement or pension fund beforehand. This kind of savings or investment is tax-free, and you can expect to have accumulated a lot of money before your retirement. Your pension fund account is not for paying for your children's college education. Instead, you can help them apply for scholarships and grants. Try your best to not use the money in your retirement account until the end of your career.
18. You Always Buy New Cars
New cars are good, but that does not imply that there are no good used cars. In other words, you do not always have to buy new cars. Moreover, a brand-new car's value starts decreasing the moment you drive it home from the dealership. Therefore, consider a used automobile if you do not seriously need a new one. Again, the fact that you have the money does not mean you should get whatever you will not be using. Instead, save it for emergencies or charitable purposes.
19. You Maintain Services and Memberships You Do Not Use
Some people subscribe to many streaming services and membership offers—more than they need. This is a big financial mistake. Most of the time, the providers of these services make regular withdrawals from your bank account, which can happen without your awareness. Therefore, go through your bank account on a regular basis to see if there are any of these services that you no longer use and unsubscribe from them. Even though each payment may only be about €20, when added up, you will be surprised at how much money you have been giving away unintentionally.
20. You Don’t Do Comparison Shopping
It is a mistake to always buy from your regular stores and never do comparison shopping. Some people prefer to stick with what they are used to when it comes to regular expenses like auto insurance and entertainment subscriptions. However, doing your research sometimes pays off—you could find a cheaper and better service provider. So, try to do comparison shopping before making some major purchases.
The same idea can be applied to making international money transfers. While Western Union is a reputable brand in cross-border payments, there are over 10 cheaper alternatives that might be better for you to use.
21. You Are Afraid to Enjoy Your Money
We decided to end our list of the worst personal money mistakes to avoid with this one, which focuses on not enjoying your money. It is a terrible and sad mistake to work so hard and be afraid to spend your money on taking care of yourself!
Even though we have been emphasising reducing your expenses to save more money, we would also like to state clearly that there is no wisdom in being stingy towards yourself. Why starve when you can afford to pay for a good meal?
Our Final Advice
Emphatically, there is nothing wrong with making a financial mistake, but repeating such mistakes is not good for prosperity. It only shows that the person needs urgent help with money management. Thankfully, we have done justice to that here.
All of the above personal money mistakes are meant to emphasise the importance of not overspending while also taking care of yourself and your loved ones and planning for the future.
As a recap of the most important pieces of advice, start by keeping track of the small costs that rapidly pile up in order to avoid the risks of overspending, and then go on to monitor the larger expenses.
Furthermore, before you add any more debt to your list of financial obligations, give it some thought—evaluate things. Also, remember that just because you can afford a payment does not mean you should go ahead with it. Lastly, always have a financial plan or budget and follow it. Ensure to include expenses for essential needs, wants, and savings in it.
In this article, we have not only shown you the personal finance mistakes people often make but also informed you on how to recover from them. We wish you the best of luck with your finances.