There are sooooo many mistakes and blunders one could make with their money that could have long-lasting, negative effects… sometimes irreparable.
Mistakes can be very easy to make, especially when we are not taught good personal finance in school, or anywhere. I admit to making money mistakes.
So, as a sort of follow-up to my top 5 money mistakes post, I wanted to compile a somewhat complete list of bad, worse and worst money mistakes anyone (not just young adults) could make. I feel like to understand how to make good, smart money decisions, you should know what could possibly be financially bad and devastating decisions.
I came up with these 32 easily, but I am sure this is not a complete list! Please feel free to chime in below and add to it!
Bad Money Mistakes:
Not tracking your spending and figuring out where your money goes each month.
Not setting up a budget for everyday expenses.
Not having at least 3-6 months ofmonthly expenses saved up in an emergency fund.
Not taking the full amount of 401k match that your employer offers. My ex had a job that matched at 6%, but he only contributed 2% to his 401k. 2%!!!?? He was leaving free money (4% of his salary) on the table. I would love to have a 6% match at my job. Needless to say, we aren’t together anymore. We obviously didn’t see eye-to-eye on finances.
Using a Prepaid debit card. These cards carry too many fees. Don’t pay extra to access YOUR money.
Buying a brand new car, instead of used. New cars depreciate on average 20% very quickly.
Carrying a balance on credit cards. Credit cards should be paid off every month in full. If you can’t do this, this is a big red flag that you are living beyond your means. Mythbuster: You don’t need to carry a balance on a credit card to build credit.
Signing (any) documents without fully reading and/or understanding everything entailed first. It is very tempting to ignore Terms and Conditions in this modern world where you are presented with so many of them and so often. Never assume that the terms and conditions will be acceptable and in your favor. Take a moment to read through them. If you still don’t understand, then seek legal advice.
Worse Money Mistakes:
Not opening up a Roth IRA (or Traditional IRA). Roths are wonderful investments vehicles with lots of cool features. Read about them here.
Financing a car (whether new or used) for longer than 5 years (60 months). Financing a car for over 5 years just means you will be paying a lot more money, because you are paying a much higher interest rate over a longer period time.
Taking out private student loans. Private students loans typically carry higher, variable interest rates, with sometimes limited consolidation options and no grace period after graduation.
Utilizing payday loans. A typical two-week payday loan with a $15 per $100 fee equates to an annual percentage rate (APR) of almost 400%, but fees can be as high as $30 per $100! That’s a 780% APR.
Not checking a credit report every year at AnnualCreditReport.com (for free) and reporting any errors. Any errors could be negatively affecting your credit score.
Not checking your credit score regularly at all 3 credit bureaus (Experian, Equifax, and Transunion). I check mine 4 times a year for free through Mint and my USAA Visa credit card.
Living without health insurance. No ones is invincible, medical emergencies happen (even when you are young). Medical bills are the biggest cause of personal bankruptcy. I know there are definite challenges for equal access to healthcare in America – I hope we can all agree one day that health and access to healthcare should be a right and not a privilege. No one should have to file bankruptcy over medical bills. So, if you can get health insurance, please take it.
Not having any/or enough insurance (auto, renter’s, homeowner’s, life insurance, long-term disability, umbrella, and long-term care). Insurance should cover the things you can’t save up for in advance. It helps to replace and protect the largest assets you have – your health, your career, your home, and your investments.
10. Letting one spouse handle/control all the money and expenses. Both parties should have equal access and control of finances, even if one spouse is a stay-at-home parent. Marriage is a partnership and money is a shared partnership.
11. Not teaching your kids from an early age about money and financial responsibility.
12. Buying a bigger house than you need. The bigger the house, the more maintenance it needs, the higher the utilities bills are, and the more STUFFyou need to fill it.
13. Marrying the wrong person. Conflicting money values and differing money styles can clash and cause strife in a relationship/marriage. Unresolved money issues can end up leading to a divorce. And, for many, divorce can be financially devastating.
Worst Money Mistakes:
Co-signing on a loan (auto, home, or student). You are considered legally responsible for this loan if the other person defaults, and your credit score will be negatively impacted if the other person makes late payments or misses payments.
Deferring your student loans. Fees and penalties can quickly add up and sky-rocket your loan balance to unimaginable amounts, which just makes them harder to pay off. And, you will have to pay them off. All student loans will follow you. They can’t be discharged in bankruptcy. Your wages and even social security can be garnished.
Falling victim to lifestyle inflation. It’s easy when you start making more money to spend it instead of saving/investing it.
Not having a will. Money magazine reports that approx. 57% of Americans don’t have a will, including 69% of parents with kids under the age of 18. Without a will, guess who decides what happens with your money? The state! Do you really want the state to decide these important issues for you? Note: Minors can’t inherit estates/money. You need to open a trust for children under the age of 18 as part of a will. In addition, you should also have a health care directive (AKA an advance directive).
Living beyond your means and accruing debt. Debt makes it hard to get ahead. Your best path to financial independence is to spend less than you earn, invest the rest, and avoid debt.
Taking a 401k loan or withdraw. You should never touch a 401k, or retirement account unless it is for retirement.
“Paying it safe” with money and investments in your 20s and 30s. Being so young, this is the best time to be putting money into the stock market. You have the advantage of time on your side. Millennials portfolios should be at least 90% stock, but preferably 100% stock.