5 common financial mistakes to avoid

Financial mistakes can have serious consequences, especially in the long run. In truth, everyone has a different relationship with money, and because financial awareness is not often taught in primary school, many people go through life unable to maximize their wealth—or sometimes, even get by.

Learning how to manage money begins with recognizing financial mistakes, then working to correct them. And a lot is at stake: mistakes can lead to debt, financial insecurity, and even bankruptcy.

Here are five common financial mistakes that people make, as well as advice on how you can avoid them.

1. Not having a budget. One of the biggest financial mistakes you can make is not having a budget. A budget helps you keep track of your income and expenses. Knowing exactly where your money is going and how much is coming in is essential information for good financial planning. Without a budget, you may end up overspending or not saving enough for the future. Using a budget as a mirror to reflect your earning and spending habits back to yourself sets you up for maximizing your wealth over the long-term.
2. Not saving enough for emergencies. A 2022 survey found that over half of Americans don’t have enough to cover a $1,000 emergency, which means any challenging financial situation can thrust them into debt. Emergencies can happen at any time, and it's important to be prepared. An emergency fund for unexpected expenses is a critical step in achieving good financial health. While it’s always tempting to draw from it, a good practice is to create a separate account just for emergencies that won’t appear in your main financial feed. Even better: choose one with a high APY.
3. Carrying high-interest credit card debt. Credit cards offer convenience at the expense of putting you into debt. High-interest credit card debt quickly adds up, making it hard to pay off—especially if you’re only paying the monthly minimum. Add the fact that the terms and conditions are not often in your favor, with sudden interest rate spikes possible at any time. To avoid this common financial mistake, make sure to pay off your credit card balances in full each month—or at least make more than the minimum payment.
4. Not investing for the future. A 2022 survey found that 55% of Americans feel they haven’t saved enough for retirement. Another survey discovered the average fund needs to be around $1.25 million for a comfortable retirement. While it may be tempting to focus on the present, the future is always right around the corner. Not investing for the future, whether it be through a retirement account or other investments, can leave you without the financial security you need later in life. This might not seem like a big deal right now, but life has a habit of creeping up on you, making financial preparation extremely important.
5. Not seeking professional financial advice. Financial planning can be complex. It's easy to make mistakes without professional advice. Financial professionals can help you make informed decisions and set you on the right path towards financial success. A financial education might seem overwhelming at first, so setting achievable goals, learning pieces at a time, will ultimately benefit you in the long run.

Avoiding these five common financial mistakes can help you achieve financial security and stability, as well as set you on the path to maximizing your wealth. By budgeting, saving for emergencies, managing credit card debt, investing for the future, and seeking professional advice, your relationship with money can dramatically change.