Five Financial Mistakes To Avoid (2024)

byWes Shannon

Jun. 05, 2024

4:41 p.m.

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Five Financial Mistakes To Avoid (1)

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After 30 years in the financial industry, I have seen five very common mistakes made by people that prevent them from attaining their financial dreams. Here they are in no order of importance:

Five Financial Mistakes To Avoid (2)

Gary Logan

Wes Shannon

  1. Spending more than they make. This is a very simple mistake that I don’t believe anyone sets out to make, but it happens unconsciously usually by someone paying for expenses on a credit card. The card bill then comes in and they are surprised by how much they owe. This can become habit forming and before a person realizes it, they have dug themselves a deep hole. There is no way to save money if every dime is going to pay toward expenses. It becomes very important to correct this mistake as soon as possible. It may mean cutting some subscription services, changing to a less expensive form of transportation, or even moving to less expensive housing.
  2. Waiting to enroll in a 401(k) at work. One year of delay in starting a 401(k) can cost tens of thousands or more at retirement. As soon as you are eligible, start contributing a minimum of 5%. The goal is to set aside 15%, but it may take many months or years to get to that level. Five percent will usually allow you to receive all of the employer match, which is critically important for the success of your 401(k).
  3. Paying off low interest debt. Understand that when you pay off a loan the return on your money is exactly what the interest rate of the loan is. So, if you have credit card debt at 22% then you make a guaranteed 22% return on your money paying that off as soon as possible. I cannot think of anywhere you can get such a guarantee. However, if you have a 3% mortgage or a 5% student loan, I think your money can earn more somewhere else. If your minimum payment is $900 and you can pay an extra $500 per month toward this loan, don’t do it. Invest the $500 each month to rebuild your emergency fund or toward your long-term goals. Money funds are paying 5% or more right now so why settle for just a 3% return. My rule of thumb is if the interest rate is 6% or less I do not pay it off early. Most investments over the long-term will earn better than 6%.
  4. Using the wrong financial instrument for the wrong function. Often, I see someone investing in the stock market either directly in stocks or through an exchange traded fund or mutual fund for a short-term need, like saving for a home down payment. Certificates of deposits, money markets, savings accounts and short-term treasury notes are useful for time periods of five years or less. Bonds are good for five to 15 years. Life insurance is good for 15 to 20 years. Mutual funds, Exchange Traded Funds (ETFs) and stocks are good for 10 or more years. Often, I have seen people get excited over stories about the investor who made a fortune on meme stocks or a new technology stock, like Nvidia, and then they invest money they need in a short time and lose their investment.
  5. Trying to time the markets. Market timing does not work over the long haul. A stock portfolio is like a bar of soap, the more you handle it the smaller it gets. Missing just five of the best days in a year can reduce results by more than 25%, according to studies. Timing requires guessing two times, one as to when to sell and get out of the market and the other when to buy and get back in. Being able to correctly guess both ends of this transaction is almost impossible. Studies have shown that a “buy and hold” strategy works the best.

The good news about all of these mistakes is that they don’t have to cause permanent damage to one’s financial goals. We are able to quit bad habits and change our behavior when it comes to finance.

Like any problem, seeking some professional help is always a good step.

Find a fee-only registered investment advisor who is required to act as a fiduciary for their clients to assist with investment decisions. Also, working with a Certified Financial Planner® can help with behaviors. Several CFP®’s work as registered investment advisors. They can be found at the National Association of Personal Financial Advisors or the CFP board’s website, letsmakeaplan.org.

Wes Shannon CFP®is a Certified Financial Planning Professional for Brazos Wealth Advisors in Fort Worth.

Five Financial Mistakes To Avoid (2024)

FAQs

What is the most common financial mistake? ›

1. Having a sloppy budget (or no budget at all) One common financial mistake is neglecting to set or maintain a realistic budget. A budget acts as your financial compass, guiding you towards achieving goals like purchasing a home, reducing debt, or even taking a much-desired trip.

What financial mistakes should one refrain from? ›

Top 10 most common financial mistakes to avoid
  • Overspending. ...
  • You never review your finances. ...
  • You don't have a budget or an emergency fund. ...
  • Getting hit with hidden fees. ...
  • Not saving enough for retirement. ...
  • Using a credit card at an ATM. ...
  • Paying too much tax or missing out on pension tax relief. ...
  • Not getting insurance.
May 29, 2024

What is an example of bad financial advice? ›

Some of the worst financial advice you can get is to only make minimum credit card payments. It's better to pay your balance off in full when the statement comes. Why? Otherwise, you'll end up paying interest that will keep your bill increasing and making it all the harder to whittle down your debt.

What is the biggest financial worry of most individuals? ›

Inflation is named the most important financial problem by all key societal subgroups but garners higher mentions from certain age, income and political groups. 46% of older Americans (those aged 50 and older) mention inflation, in contrast with 36% of younger Americans (those under 50).

What are three financial problems? ›

Here is a list of the most common financial problems people may face: Lack of income/job loss. Unexpected expenses. Too much debt.

What mistakes should be avoided? ›

Examples of careless mistakes at work
  • Making spelling and grammatical errors.
  • Miscommunicating information.
  • Managing time inefficiently.
  • Misunderstanding a task.
  • Emailing the wrong recipient.
  • Miscalculating data in reports.
  • Forgetting to complete tasks.
  • Entering incorrect data.

What's your biggest financial regret? ›

Not saving for retirement early enough has been the No. 1 regret among Americans for six out of the seven years Bankrate has asked about financial regrets. The one exception is in 2021, when not saving enough for emergency expenses was the No. 1 regret.

What are the three 3 common budgeting mistakes to avoid? ›

Let's look at some common budgeting mistakes to avoid that can help you on your road to financial freedom.
  • Not having a budget at all. ...
  • Not knowing your spending patterns. ...
  • Not having an emergency fund. ...
  • Not differentiating between wants and needs. ...
  • Not leaving any wiggle room. ...
  • In summary.

How do you let go of financial mistakes? ›

7 Tips to Bounce Back from Financial Mistakes
  1. Don't Dwell on It. ...
  2. Take Stock of Your Situation. ...
  3. Get Back to Basics. ...
  4. Freeze Your Spending. ...
  5. Don't Be Tempted by Quick Fixes. ...
  6. Take Care of Your Health. ...
  7. Start Preparing for Emergencies.

What are the most difficult years financially? ›

Your 40s represent the busiest decade of your life, filled with challenges, opportunities, and financial decisions that can affect you and your family for years to come.

What is the biggest financial mistake? ›

Over-relying on credit cards and financing depreciating assets can worsen financial woes.
  1. Unnecessary Spending. ...
  2. Never-Ending Payments. ...
  3. Living Large on Credit Cards. ...
  4. Buying a New Vehicle. ...
  5. Spending Too Much on Your Home. ...
  6. Misusing Home Equity. ...
  7. Not Saving. ...
  8. Not Investing in Retirement.

What is the nastiest hardest problem in finance? ›

“It was Nobel Prize winning economist William F. Sharpe who said that decumulation is the nastiest, hardest problem in finance,” Monteiro says. “It's a very complicated problem. You have to start by asking what your life is going to be like in retirement.

What the best advice for someone who is struggling financially? ›

Coping with financial worries
  • Stay active. Keep seeing your friends, keep your CV up to date, and try to keep paying the bills. ...
  • Get advice. If you're going into debt, get advice on how to prioritise your debts. ...
  • Do not drink too much alcohol. ...
  • Do not give up your daily routine.

What is the most common financial crime? ›

Embezzlement and misapplication of funds are two common financial institution fraud crimes in FBI investigations. Sometimes, fraud can be severe enough to cause the failure of a bank or credit union..

What is the leading cause of financial failure? ›

Poor budgeting, inability to collect accounts receivables in a timely manner (which can cause severe cash flow problems), and poor accounting practices are other potential causes of financial distress.

What is your biggest financial regret? ›

THE BIGGEST REGRET IN THE SURVEY WAS THAT PEOPLE DIDN'T SAVE FOR RETIREMENT. SOON ENOUGH, AND THE SECOND BIGGEST FINANCIAL REGRET WAS THAT PEOPLE DIDN'T SAVE ENOUGH FOR EMERGENCIES.

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