37 Money Mistakes: You Should Avoid Making These Mistakes at All Costs

12 April 2023
15 min read
37 Money Mistakes: You Should Avoid Making These Mistakes at All Costs

In this article, we will talk about the most common mistakes people make with money.

Money management can be complex, especially if that discipline is not inculcated since childhood. Poor money management can cost you much without your knowledge, and you may find your pocket empty sooner than expected. But an effective money management plan can lay down the path to an incredible success story.

Money Mistakes People Make

So here is the list of things that you could avoid if you want to incur high returns :

1) Not thinking about the future

It might be good to keep your mind in the present and do a mindful meditation, but it will be best if you plan your money for the future. As the future is uncertain, it becomes imperative to account for all the risks. And this can be done by creating an emergency fund that will help remove the risks that come with the future.

An emergency fund is necessary as nothing is more important than money when you arrive at a sticky situation.  Of course, not all your savings need to go for the emergency fund, but some amount needs to be poured in.

2) Not planning a budget

To effectively manage money, a budget is a must. You need to make sure that you spend according to your budget. Having a budget is a necessary habit that will help you save money. To have control over your money, you must know where the money is going so that you can plan on how to spend it effectively.

Just having a budget will not do; you must create a budget that is convenient for you. Creating a budget is not a big task. You can follow a 50/30/20 rule to help you achieve your goals. This rule is quite flexible,; all you need to do is follow it regularly.

This rule states that you must allocate 50% of your earnings for the necessities of your life: housing, child’s education, transportation, etc. You should allocate 20% to savings and investments, from the remaining money, and the rest should be used for luxuries or lifestyle choices. This would help you track your spending regularly.

3) Not saving adequately

This is a significant mistake that people make, and they must realize that savings are a must. One must know that life can be a bumpy ride. But wearing a seat belt can always help when the road is steep.

Follow the 20% savings rule effectively, and this might make a difference for you. However, make sure you have a reality check before you start to save effectively and for that doing the math is a must.

4) Neglecting retirement plans

It is easy to support yourself and your family when you are earning. But keeping yourself when not employed is a different story altogether.

Dependency is a choice one must avoid, and to do that, one need to start saving for retirement and that too, from an early age. Every rupee earned during the working days of your life should go towards the funding for the non-working days. So if you haven’t started saving make sure you start funding yourself for retirement.

5) Unplanned Finances

Not having a plan on how to build your dream empire or cut down your debts, or even how to save effectively will only make you go slow towards achieving your goals. Unplanned finances stop you from getting ahead in life.

Figuring out what you want to achieve a year from now and planning on how you want to achieve it financially makes you reach your goal expected.

6) Increasing Debt

Debts are a major concern of an individual. How to reduce the debt is a secondary question, the primary concern should be how to keep the debt from increasing. That doesn’t mean you can’t have debts. Some debts help you build wealth at an early age, but too much of it can ruin your financial life. So it is necessary for all of us to avoid increasing debt and for that we must develop a particular mindset.

You need to figure out a deadline to make yourself debt free and work on it. Make sure you don’t spend more than you earn or earn less than you spend. Learning and evolving is the key!

7) Spending Money On Unnecessary Things

Spending too much on unnecessary things is a mistake that majority of people make. It is inevitable for most.

But if you take a moment to analyze your spending on such things, you would realize that avoiding this mistake can make you save a little more or spend on things you need more in life.Do not compromise the necessary things for the unnecessary ones. Overspending needs to be cured in order to make the most of your finances.

8) Spending Emotionally

Emotions can get the better of us sometimes and at that time we need to keep calm and refrain from overspending on things we do not need.Having a bad day or even a good one can make you overspend, which should not be the case.

9) Skipping Tax Implications

Investment gains are great but gains with tax benefits are awesome! Investment gains will be reduced by the amount of your tax bracket and therefore they should be managed carefully. Investing in schemes that give you tax benefits are a great way to save money which would otherwise be lost.

One can also invest in ELSS schemes where they can get tax benefits and a good return as well. There is another way to offset capital gains and that is by reviewing their portfolio and dumping any unadvantageous element before the year ends.

10) Investment Made On Speculations

This is a mistake most beginners make while investing. They tend to invest based on speculations and rumors expecting to make money out of it, but in the process, they loose  money.

Investments should be done based on proper analysis and also considering the risks involved. Do not just rush into making an investment just because someone recommends it to you or just because there are speculations.

11) Taking Foolish Risks

Foolish and unaccounted risks only make people lose their money. People have high expectations from investments but they tend to forget that only good investments can make you the kind of return you want. Don’t just invest anywhere but invest after a proper analysis. Also, try to hedge the risk as much as possible.

12) Not Setting Up A Financial Goal

Not setting up a financial goal is one  mistake that people make with money. Your financial goal gives you steps to work towards your financial aim.These goals can be anything like home ownership, starting your own business or saving for retirement.

What happens when you don’t set specific goals, you might feel lost and may never be able to reach the point where you have savings for a down payment for your home or you may not be in a good position when it is time to retire. Take time and set good financial goals and keep reviewing them regularly.

13) Unnecessary Subscriptions

This is somewhere we all waste our money. We unnecessarily subscribe something for the whole year and then don’t use it regularly. The so-called gym freaks would agree with me on this.

Paying gym fees for the whole year and then attending it irregularly will only make you waste your money. Same goes for the subscription of set up box. Instead of choosing all the channels you might end up saving money if you select the channels you watch on a regular basis.

14) Bad Habits

You might be under a lot of stress, working multiple shifts to earn yourself a living and you feel an urge to let go of the stress by smoking. But have you ever realized how much you are spending yearly on cigarettes?Let us give you a reality check. Smoking 6 cigarettes a day on an average would cost you around Rs.80. This, when calculated on a yearly basis, comes out to be around Rs.30,000.

Suppose you smoke for 30-35 years in your lifetime until finally realizing its effects on your body and decide to quit one day, you would realize that you have spent around a million on just cigarettes. Rather than this, invest in a scheme called ‘No Smoking’ and earn a million as return with tax benefits.

15) Going Without Insurance

Many people choose not to go with insurance to save money but they tend to forget that their insurance is their safety net. It will protect you from bankruptcy and will also make sure that you have the things you need.

Insurance is not an option but a necessity and you need to make sure to have basic insurance coverage, including health insurance to protect yourself from problems in the future as there are uncertainties all around.

16) High Credit Card Debt

Don’t fool yourself into believing that a credit card debt is not as bad as any other debt. A credit card debt can compound itself if not paid in time. Instead of reducing the total debt of the credit card for the month, you tend to pay whatever you have saved for the month.

This will only lead to increasing your debts. In addition to this, your credit score also gets affected and you may not be able to pay your other expenses.

17) Not Diversifying

Mistake most of the people make is they don’t diversify the investments. People tend to invest majority of their income in one particular financial instrument and open themselves up to risks. Instead of that they should diversify their investment so as to hedge risks accordingly.

This will not only help them to get a good return but also make them save a lot of money which otherwise would have been lost due to additional risks.You can also look to diversify your income.

In fact, diversifying your income will provide you with a backup if something happens. It is a chance to broaden your interests and explore different areas.

18) Extravagant Wedding

Everyone desires for a big fat wedding, but is spending too much on a wedding necessary? The extra expenses that you incur in a wedding can be avoided.Spending on it and cutting your savings or withdrawing money from the retirement fund does not look feasible.

Instead of this, you should create a budget that you can afford without compromising on your savings for retirement. This would help you avoid overspending on weddings.

19) Wastage Of Electricity

Electricity bills can put you in a tight position if you don’t pay enough attention to them. Switching on a fan and not switching it off even when no one is the room is a bad habit that not only leads to electricity wastage but also increases your spending.

So before you forget to switch off a light or fan, remember that many rural areas in India still do not have access to electricity for more than 12 hours a day. Save electricity, save lives and more importantly save your money. Every penny saved is every penny earned.

20) Spending on Luxuries You Cannot Afford

We all love luxurious items and wish to have it but what people usually do, is that they buy them even if their pockets don’t allow them.

For instance, if you have a 30,000 rupee job for a month then saving for 3 months just to buy an iphone worth 60000 rupees is not logical. Instead, you can save or look for investing in a less risky asset to earn more.

21) Spending On Things Mindlessly

This is a common mistake people commit. They go to a shop to buy an item, ask the shopkeeper about the article’s price and then, pay the price and leave. But you should know that the shopkeeper might be charging you an extra buck.

Instead of just buying from one shop you should look at alternatives for cheaper priced products. This might help you in save by a large margin.

22) Living in an Unaffordable Property

One should always spend according to what they earn. We all dream to have an expensive house but if your pocket does not allow it, then maybe you should give yourself some time to buy the house of your dreams.

Living in a home one cannot afford is a mistake most of us make, until finally, we realize that it is no more feasible for us. But once you get to that moment of realization, most of your savings have left.

23) Expensive Hobbies

A hobby is like a stress buster for children or even working individuals. But soon people realize that their hobbies have become a necessity, rather than an optional activity. This is alright as long as you have the money to pay for it.

But if you’re broke and don’t have the money, then it is time to reconsider your hobbies or check other alternatives to see if there are cheaper ways of pursuing the same hobby.Kids are only as expensive as you make them. One does not need to spend a lot of money on their children in order to provide them with a wonderful childhood.

24) Small Purchases That Lead To Big Expenses

Small purchases can lead to a big expense and it is better not to underestimate them. People keep making small purchases thinking that they can afford them and soon all these purchases start to get accumulated.

But once they are short of money at the end of the month, these small purchases don’t seem too small anymore. So instead of spending money here and there, you can use it to take care of important expenses.

25) Using Your Vehicle For Small Distances

If you stop using your vehicle for small distances, you can do a lot of good, keeping in mind the situation of global warming and pollution.It will also ensure that you don’t overspend on petrol or diesel and will make you exercise by walking or cycling to small distances.

26) Spending More Than You Earn

There is a simple principle to keep up with your finances. You either spend less than you earn or earn a lot more than you spend.You must make sure to never spend whatever you earn, as there is a need to keep some money aside for emergencies and uncertainties or you better exceed your earning.

Spending as much as you earn or accumulating debt because you spend more than you earn, is an inconvenient way to live. It is important to be disciplined with your spending and there is a need to make the necessary sacrifices or lifestyle changes in order to make your spending align better with your earnings.

27) Spending Money You Don’t Have

You might be tempted to buy a thing or two and tell yourself you’ll replenish the money when you get your next income, but when the income comes, you will quickly realize that there are other pressing commitments that require your attention and you need to take care of them.

Ultimately, this leads to you overspending and being absolutely broke until you receive your next paycheck.As a result, you might end up in debt to make ends meet and this is very likely to launch you into a vicious cycle of debt.

28) Spending On Entertainment

One mistake that people often make is that they don’t have a budget for their entertainment expenses. There isn’t a lot that can be said on this but you must ensure to have a budget for your entertainment expenses and at the same time, you must be disciplined to strictly adhere to it.

If this is not done then you might end up overspending. For creating an efficient budget for entertainment expenses, you should understand about entertainment needs and accordingly set up a budget based on that understanding.You can then comfortably settle at a compromise and set aside an average range for your entertainment expenses that you’re more likely to adhere to.

29) Price Over Value

The price you pay for anything from investment to meals or clothes is only part of the story. It is more important to look at the value it comes with. There is a difference between the mindset of a common person and a successful one.

30) Buying Something That is Unnecessary

An Unnecessary item will cost you a lot. Money should be managed properly and to manage money, you must be disciplined. If you are looking to build a lot of wealth, you will have to avoid spending on things that you do not need.

31) Not Saving Until Retirement

People usually don’t realize that they need to start saving for retirement at an early age even if it means that they put aside only a small amount. Retirement is an important aspect of an individual’s life and therefore it should be taken seriously. So start saving for retirement early.

32) Not Maintaining Enough Liquidity

We all know how important liquidity is and it is equally important that you have cash in your hands. Depending all the time on debit cards are bad and too much payment from credit card can increase your debt. Cash is the king and do make sure that you have the king by your side all the times!

33) Not Saving Until Retirement

People usually don’t realize that they need to start saving for retirement at an early age, even if it means that they put aside only a small amount. Retirement is an important aspect of an individual’s life and therefore it should be taken seriously. So start saving for retirement early.

34) Buying Something That is Unnecessary

An Unnecessary item will cost you a lot. Money should be managed properly and to manage money, you must be disciplined. If you are looking to build a lot of wealth, you will have to avoid spending on things that you do not need.

35) Using Credit And Not Cash

There are studies which prove that people who buy stuff with credit cards rather than using cash usually spend 12% to 18% more. In addition to the extra payment, people who use credit card to purchase things and then are unable to pay off their credit card balances every month usually end up spending 50% more on their purchases after factoring on the interest and fee.

Another study from the University of Pennsylvania shows that people who do not spend impulsively can save up to 23% on their grocery bills. So learning to shop with cash can do two things for you. First, you can save yourself from the risk of getting into debt and second, you can also keep yourself away from impulse buying.

36) Making Financial Choices Out Of Fear

Another common mistake is to make a financial choice when you are pressurized or are afraid and that you may end up making a mistake at some point of time.Hence, it becomes imperative to take a step back and consider all your options with a logical mind. You may want to talk with someone you trust and then take the decision.Another mistake you could make is to give into pressure of buying a new car,get married, purchase a home, or have a child. You might not be ready for these things and giving into pressure is not going to help you financially either.

37) Not Spending Enough

Right from the start, we have focussed on saving and spending less. It is necessary to build finances in order to be certain in uncertain events, but, it is also important to realize that we earn to live the way we want to and for that, it is necessary to spend enough. Buy what you want, travel where you want and live your life the way you want but not at the expense of a bad future!

Happy Investing!

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