Common money mistakes

Quick insights

• Financial mistakes may hinder your ability to achieve your financial goals.
• Overspending, neglecting bills and lacking a financial plan are some examples of money missteps.
• Creating a monthly budget and savings plan may help you make smart financial choices.

Money mistakes are often stressful, sometimes leading to financial instability and missed opportunities. The good news? In many instances, these pitfalls are avoidable. While it’s true that factors beyond your control can disrupt your budget, you may be able to improve your financial well-being by steering clear of some of the most common pitfalls.

Here are five common money mistakes and some tips to help you avoid them.

5 financial mistakes to avoid

When you’re trying to change your habits with money, it may be helpful to know some of the biggest financial mistakes. Here are five money mistakes and some potential ways to avoid them:

Overspending or not budgeting

Your spending is one component of your financial well-being. Unnecessary purchases can quickly add up, and relying on a line of credit to fund these expenses could potentially lead to debt, interest charges and fees—situations you might want to avoid, especially if you’re already facing other financial challenges.

While what counts as “unnecessary” can vary, here are some potential causes of overspending:

• Not comparing prices for major purchases
• Buying new cars instead of used ones
• Frequently dining out or ordering takeout
• Paying for unused subscription services
• Purchasing a larger home than necessary
• Having a high-end gym membership

Living within your means doesn’t have to mean eliminating all unnecessary expenses. If a non-essential expense, like a monthly massage, is important to you, you don’t necessarily have to forego it as long as it fits within your budget.

If you don’t have a monthly budget, creating one may help you avoid overspending. Budgets are tools that may help people understand their financial limits and exercise greater control over their spending. Your bank may offer budgeting resources to help you with this task.

Not saving

Many households don’t save enough or aren’t saving at all. Without adequate savings, events like an unexpected expense or job loss could lead to financial difficulties.

That’s why it may be helpful to include an emergency fund in your savings plan. Emergency funds are savings set aside for unforeseen events that have the potential to disrupt your monthly budget. It’s generally recommended to keep enough money in the fund to cover 3-6 months of expenses. If that amount feels too intimidating, you can always start with a smaller savings goal and reassess once you meet it.

The first step in building an emergency fund is to open a savings account. You may want to research the different types of savings accounts, as well as the rates and fees offered by various banks, before you select a savings account. You may also want to consider factors like whether the bank has branch locations in your community.

It may be a good idea to keep your emergency fund separate from other savings. For example, if you’re saving for both a down payment on a house and an emergency fund, keeping these funds in separate accounts could potentially encourage you to use each one for its designated purpose.

Failing to fund a retirement account

Do you have a concrete financial plan for retirement? Without one, your long-term financial stability could be at risk. While you may qualify for Social Security when you reach retirement age, the benefits may not be sufficient to maintain your current lifestyle.

A retirement plan often includes funding a 401(k), an IRA or both. These accounts help grow your money through compounding interest, which can steadily grow over time. The amount you need to contribute each month depends on a variety of factors, including your retirement goals, lifestyle, employer contributions, inflation and more.

Some retirement accounts also provide planning tools to help determine the appropriate contribution level for your needs. Additionally, you may receive personalized guidance through a qualified financial advisor. You should consult your personal legal & tax advisor as well. Note that your plan may need periodic adjustments to stay aligned with your goals and circumstances.

Not having a financial plan

Financial planning—essentially, a concrete plan for how you’ll manage your money over time—may feel intimidating. It’s understandable to feel apprehension about confronting your current financial situation. However, without a well-defined financial plan, it may be difficult to achieve your financial goals.

A financial plan generally includes specific, clear goals, along with actionable steps and timelines for achieving them. For example, you might set a goal to save $300 a month over the next year for a vacation.

In addition to short-term goals like saving for a vacation, the plan also includes any long-term financial plans, such as funding your retirement or a child’s college education. The plan may also make strategic choices about any competing financial priorities (for example, whether to pay down debt or save first).

Creating a proactive plan to achieve your financial goals may provide relief and motivate you to follow the financial steps you’ve outlined.

Falling behind on bills

Even those with the best intentions to pay their bills may miss a payment due to financial hardship or forgetfulness.

Unpaid bills may result in service interruptions, late fees and other charges—but there are other, less direct impacts, too. For example, skipping a homeowners insurance payment could result in your policy being canceled, leaving you more financially vulnerable if disaster strikes.

When you’re unable to pay your bills, it may be beneficial to contact the service provider to ask for an extension or make a payment arrangement. You can also consider which bills are essential. Bills for shelter, heating, electricity and childcare are generally considered essential because they enable you to maintain employment. For most people, missing an electric bill payment will have a greater impact than skipping a cable bill.

During financial difficulties, it may be time to look for ways to stretch your money, such as using coupons, cooking at home more often or finding more affordable housing. You may also research any resources in your area that provide financial assistance, such as non-profit organizations.

If forgetfulness tends to be a concern, setting up autopay could be a potential solution. Automatic payments can generally be arranged through either the vendor or your bank.

In summary

There are many potential pitfalls that can strain your finances. Overspending, not saving, failing to plan for retirement or other savings goals and falling behind on bills are some common examples. Creating and sticking to a monthly budget and savings plan may help you avoid these pitfalls. Many banks offer resources to help you budget, as well as savings accounts that complement your savings goals.