6 Financial Mistakes to Avoid at All Costs

My series on Personal Finance Basics continues this week with a look at some of the most common personal finance mistakes we make that cost us dearly.

Are you guilty of any of these?

  1. Spending More Than You Earn – Duh! If you spend less than you earn, you will accumulate savings. If you spend more than you earn, you will accumulate debt. Find a way around either of these and you’ve somehow violated natural laws.
  2. Waiting for Tomorrow – We seem to enjoy living with the thought that “tomorrow, I’ll finally have enough to save,” or that “next year, I’ll make enough to travel,” or even “Once I retire, I’ll be able to do more with my money.” We exist in the present – why not try living in the same reality too? Save today. Travel today. Live your life the way you want to, today, by being smart with your money and doing what you can afford.
  3. Losing Financial Perspective – It’s incredibly easy to get bogged down in the “thick of thin things,” to quote Stephen Covey. Focusing on priorities and being able to maintain a bird’s eye view of your financial goals and progress is vital to understanding what it is you’re trying to achieve in your financial life.
  4. Using Emotions as a Guide – Any successful investor will tell you that fear and greed are the driving forces of the market. That, and you should always do exactly what everyone else is not doing! How scary is that? Very. And it’s precisely why you should never manage money (or your investments)¬†with emotions – only with objective, hard data and smart decision making. Otherwise, you’ll buy that $500,000 house you “really like.”
  5. Relaxing on the Big Stuff While Tightening on the Small Stuff – It’s great to be frugal and cut out your daily $4 cup of coffee. It will save a great deal of money in the long run. But the same people that over-frugalize on the small things go out and buy a new Lexus, a house they can’t afford, or blow money on a vacation to Australia that’s paid using credit. The bigger the purchase, the more restraint, research, and smarts you should bring to the table.
  6. Expecting a Smooth Ride – Haven’t you heard? Life isn’t fair. No matter how hard you try, you’ll be dealt a card you didn’t expect. How well you can cope with that card is all about preparation and expectation. Rolling with the punches might be a game of probability, but you’ll probably get hit. Get ready.

Did I miss one? Share your own mistakes in the comments!

8 thoughts on “6 Financial Mistakes to Avoid at All Costs

  1. Pingback: Personal Finance Buzz
  2. 7. Relaxing on the Small Stuff While Tightening on the Big Stuff

    My husband and I — and I suspect many, MANY others — were very bad at that. And we wondered where all the money went since we didn’t have a big t.v. or a car payment or expensive clothing. Even our house payment is well below 1/3rd of our income. But a book here, a candy bar there, a pair of shoes even bought on clearance… those things really add up. It’s really easy to justify things when they’re “Only $1” or “Wow, 90% off!”, but spending is spending.

    1. You’re absolutely right – it works against you on both ends of the “scale” spectrum. I think the key is understanding how youspend.

      For example, some people don’t spend on the little things but only blow on the big stuff, so that’s what they have to worry about. I’m in this category. Some people only spend on <$5 and rarely on the big things, like yourself. Lastly, you can be guilty in both categories (ouch!).

      Understanding where you belong can help you in watching those specific areas and guarding against financial leaks.

      Thanks for stopping by, Meg!

  3. #1 seems so obvious, doesn’t it? But as you point out, spending more than you earn is a quick way to pile up debt. What I find interesting is that so many people talk about spending less, but not too many people talk about earning more. Back in June, I got laid off from a job that paid fairly well. I just started a new job, and I don’t make as much. Sure, I’ve tried to cut back, but I am also coming up with ways to boost my income with side jobs and freelance work. A friend of mine sent me an advance copy of Loral Langemeier’s new book, “Put More Cash in Your Pocket,” and it was very inspirational. It comes out next month, and I think it’s a must-read for anyone who could use extra money! You can pre-order it at liveoutloud.com/newcashbook/.

  4. You make some valid points; however, I think number 3 stands out more for me: “Losing Financial Perspective.” Sometimes it’s easy to get sidetracked especially if an unexpected financial situation develops. That’s why it’s important to write a vision and set short-term, intermediate and long-term goals. In addition to that, you always have to have in place a Plan B for the “what if”? rather than just saying, “Whatever comes up, I’ll just roll with the punches.” It’s called “Financial Accountability.”

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