21 Money Mistakes and Problems to Avoid

Throughout the financial improvement series, I’ve shown you how to save tons of money with big wins, how to automate your finances, and overall better your financial situation. But I know some of you won’t try some or any of the tips I’ve shared. Maybe it’s skepticism. Maybe you think you know better. Maybe you’re just lazy.

So today I thought I’d go over some of the biggest financial pitfalls you can have. Whether through lack of action or ignorance these items will cost you dearly.

Avoid These 5 Critical Money Problems

Here are five critical mistakes that will set you back significantly.

Spending More Than You Earn

The worst mistake you can make with money is to spend more than you earn — this is a surefire way to get into debt. The root cause of almost every single money problem you can have is to spend more than you have. Performing this mistake leads to debt, interest charges (which then further deplete your available cash), and the inability to save for anything. It’s flat out dumb.

Buying a House You Can’t Afford

Looking to put yourself at risk of foreclosure and paying too much in interest? Buy a house you can’t afford to buy. (By the way, this is one of the core problems of the housing bust of just a few years ago.)

Don’t rely on your home going up in value to pay off your problems. Don’t assume you’ll be able to refinance to a lower rate in the future (your home value dropping might kill your ability to refinance). Don’t assume you’ll be able to sell it in the future.

Automating Your Bills… and Ignoring Them

If you’ve been paying attention this one might make you scratch your head.

“Wait… I thought you said I was supposed to automate the payment of my bills?”

Yes, you are.

But not to the point of pure ignorance. Ignorance is not bliss. Inevitably a charge or two hits your credit card that you don’t notice. Or your service provider adds in an extra charge for a few months that you end up paying.

Automate your bills… but still read them. It’s important.

Rely on Credit for Emergencies

Some of you don’t think you need an emergency fund because you have a magical credit card that will take care of all of your problems.

I find that solution… interesting.

So you’re saying it is a better idea to keep nothing in the bank and pay anywhere from 10% to 20% (or higher) in interest when you use your credit card for emergencies.

You do know you can be paid interest for keeping money saved in a bank, right? Why would you want to pay interest instead?

Save Nothing for Retirement

Imagine it now… sitting in a tiny apartment, eating ramen noodles, and hoping you can stretch your Social Security dollars a little bit further this month. You never travel, you never relax, and you’re thinking about getting a part-time job as a greeter at a local store.

That’s the life of the retiree with no retirement savings. Completely dependent upon the government for income with little true retirement freedom.

16 More Money Problems to Avoid

Additionally, here are some more common money mistakes:

Money Management

  • Assuming something is always a good deal because it is on sale — Getting 50% off on something you don’t need simply means you are spending money unnecessarily. Always think about how often you’ll be using the item you’re about to purchase.
  • Paying retail - There are too many good resources on the web now for anyone to be paying full retail price. Before you buy anything, be sure to do your comparison shopping online and find a discount coupon or a special promotion. At the minimum, make sure you take advantage of cash back rewards when you shop.
  • Buying new when used would do — Another question to ask is whether or not you need to buy new. There are plenty places where you find good used items. This is especially true with car purchase, where buying used is often a better option.
  • Paying late fees
  • Relying on your job as the only source of income – This is something that we preach religiously on Moolanomy…build and diversify your income.
  • Passing up tax breaks – There are many tax credits and deductions that you can potentially claim. Don’t be complacent and make sure you know what they are so that you can take advantage of them.
  • Not asking for help when you need it – Do-it-yourself is great (to some extent), but we all need help occasionally. There are plenty of free advice online, but there are also times when you should pay for help. Don’t be afraid to do this because what you paid the expert could cost far less than the mistake that could result from a botched DIY attempt.

Debt Management

  • Paying only the minimums – The best way to use a credit card is to pay it off each month. If you only pay the minimum, you could be paying far more than the original purchase price. Here is a credit card payment calculator that shows you how much interest you’ll pay by paying only the minimum payment.
  • Taking on too much, or too little, debt – Debt is not always necessarily bad (especially now that the borrowing rate is so low). While you should avoid consumer debt, taking on debt to buy a house (or better yet, an investment property), or to start (or expand) your business is not necessarily a bad thing.
  • Not paying attention to your credit – Whether or not you plan to borrow money, your credit is important. Learn how to track and improve your credit.

Saving for Retirement and Investing

Insurance

  • Overpaying for home insurance – We covered this earlier in the series, insurance is where you can save a lot of money very quickly.
  • Putting off buying life or health insurance – Both of these are meant to protect you against catastrophic event. The younger and healthier you are, the cheaper it is to buy into these plans. Don’t put it off and put your finances and family at risk.

Your To Do List

If you want to succeed financially, do NOT do these things:

  • Spend more than you earn
  • Buy too much house
  • Ignore your bills
  • Rely on credit cards
  • Save nothing for the future

If that doesn’t sound like the best of ideas… go back and read through this series, implement what you find, and enjoy a stronger financial future.

About the Author

By , on Sep 8, 2012
Kevin Mulligan
Kevin Mulligan is a debt reduction champion with a passion for teaching people how to budget and stay out of debt. He's building a personal finance freelance writing career and has written for RothIRA.com, Discover Bank, and many others.

15 Steps Financial Success Plan

Leave Your Comment (8 Comments)

  1. Jenny @ Frugal Guru Guide says:

    For those who don’t own a home, renter’s insurance is a must. So many people don’t buy it, and when something happens, they lose everything.

  2. When you really think about this many of the very real problems you have mentioned here come down to the whole “keep up with the Jones” effect…

    I have friends, family and neighbors where in some way or another the influence of “what the neighbors are driving” or “how my friend dresses” or “what other kids are doing” significantly influence their buying decisions. And this is everywhere around us, whether it be friends, family,neighbor, coworkers etc.

    Of course few people will admit it but when you see the “follow the crowd” spending and purchasing habits of Americans it is clear that many spend IAW how others around them spend.

  3. Jonathan says:

    No matter how much you think you know about finance, it is impossible to build wealth if you don’t follow time test basic financial principles, and that is something I can personally attest to!

  4. Jenna says:

    What about paying account fees with your regular banking accounts?

  5. Suresh says:

    Good post. I am with you about purchasing a house which you cannot afford. I am delaying my house purchase due to this till such time I make enough money in the next 1 year and afford the house. Thanks.

  6. Daisy says:

    I’m (probably unreasonably) scared about buying a house that I can’t afford. Even if you can afford it in spades, interest rates increasing and job loss is always something to think about.

  7. Jill Beissel says:

    Love your list! It touches on all of those glaring problems we know we have but never want to fess up to.

    I think it’s especially great that you bring up auto bill pay. It’s an overlooked financial flub when used improperly.

    Too often, I know people who automate their monthly credit card payments and utilities as a measure of responsibility only to find that their set-it-and-forget-it mentality gets them in trouble with overdrafts and decreased budget supervision.

    Granted there are the benefits of convenience and avoiding interest spikes from late payments, but submitting to auto-pilot can also hurt you when billing cycles get thrown off by a day or two.

    As much as we’d like to automate our finances with the help of technology, there is no substitute for conscientious, manual tracking.

  8. Buying a house you can’t afford is my top NO NO. People are often looking for their dream home but is it really worth burdening your personal finances beyond what they can cope with, especially in the current financial climate

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Disclaimer

The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

While we try to ensure that the information on this site is accurate at the time of publication, information about third party products and services do change without notice. Please visit the official site for up-to-date information.

For additional information, please review our legal disclaimers and privacy policy.

Notice

Moolanomy has affiliate relationships with some companies ("advertisers") and may be compensated if consumers choose to buy or subscribe to a product or service via our links. Our content is not provided or commissioned by our advertisers. Opinions expressed here are author's alone, not those of our advertisers, and have not been reviewed, approved or otherwise endorsed by our advertisers.